The rapid rise in the dollar likely will reduce sales and earnings
Bloomberg News/Landov
The
U.S. sets many trends. One is central-bank quantitative easing, which
along with historically low interest rates, has helped the American
economy rebound and supported stock prices.
But with the U.S. moving beyond the money-printing stage of its recovery, and the European Central Bank and Bank of Japan buying bonds hand over fist, the rising dollar poses a threat to sales and earnings for scores of major American companies.
The dollar has risen 14.7% against the euro USDEUR, +1.34% and 1.4% against the yen USDJPY, +0.11% this year through Wednesday.
There are 475 U.S. companies included in the S&P 500 Index SPX, -0.61% and 113, or 24%, derived more than half of their most recently reported annual revenue from outside their home country (or outside the U.S. and Canada, or outside North America, depending on how the companies break down revenue).
Many companies are now emphasizing two sets of numbers when reporting revenue. For example, McDonald’s Corp. MCD, +0.10% said last week that its total “systemwide” sales for February fell 8% from a year earlier, but on a “constant currency” basis, sales (including those from newly opened restaurants) were up 0.5%. Of course, what flows to the bottom line is the unadjusted figure, so the effect of the currency translation could place a major drag on large-cap stocks this year.
During 2014, 68.5% of McDonald’s sales came from outside the United States, which will add to the difficult sales comparisons as new CEO Steve Easterbrook works to revamp the company’s menu.
When analyzing data for S&P 500 companies, one of the problems is that not every company provides enough information to isolate revenue from outside the United States (or, again, outside the U.S. and Canada, or outside North America). So the following list is limited to companies for which data are available from FactSet.
Here are 20 U.S.-based companies in the S&P 500 that derived the highest share of their most recently reported annual revenue from outside their home country:
The
point here is not to say that you should expect U.S. stocks to decline
because of the dollar’s rapid rise. Far from it. Mark Hulbert made a strong case last month that companies with major operations overseas will also see declining expenses as local currencies decline.
And back in September, William Watts provided a list of reasons why the strong dollar won’t suck the wind out of stocks.
But there’s no question that fourth-quarter earnings for the S&P 500 as a whole were very disappointing, in part because of the rising dollar. And for many of the companies listed above, the quarterly press releases showing comparisons of sales figures are likely to show painful declines during this period of quantitative easing outside the U.S.
If you have a long-term investment in a solid company that does a lot of business outside the United States and are otherwise satisfied with its business strategy, this may not be a sell signal, but you will need to be patient over the next year.
But with the U.S. moving beyond the money-printing stage of its recovery, and the European Central Bank and Bank of Japan buying bonds hand over fist, the rising dollar poses a threat to sales and earnings for scores of major American companies.
The dollar has risen 14.7% against the euro USDEUR, +1.34% and 1.4% against the yen USDJPY, +0.11% this year through Wednesday.
There are 475 U.S. companies included in the S&P 500 Index SPX, -0.61% and 113, or 24%, derived more than half of their most recently reported annual revenue from outside their home country (or outside the U.S. and Canada, or outside North America, depending on how the companies break down revenue).
Many companies are now emphasizing two sets of numbers when reporting revenue. For example, McDonald’s Corp. MCD, +0.10% said last week that its total “systemwide” sales for February fell 8% from a year earlier, but on a “constant currency” basis, sales (including those from newly opened restaurants) were up 0.5%. Of course, what flows to the bottom line is the unadjusted figure, so the effect of the currency translation could place a major drag on large-cap stocks this year.
During 2014, 68.5% of McDonald’s sales came from outside the United States, which will add to the difficult sales comparisons as new CEO Steve Easterbrook works to revamp the company’s menu.
When analyzing data for S&P 500 companies, one of the problems is that not every company provides enough information to isolate revenue from outside the United States (or, again, outside the U.S. and Canada, or outside North America). So the following list is limited to companies for which data are available from FactSet.
Here are 20 U.S.-based companies in the S&P 500 that derived the highest share of their most recently reported annual revenue from outside their home country:
| Company | Ticker | Industry | % annual sales from outside the U.S., or the U.S. and Canada, or North America |
| Coca-Cola Enterprises Inc | CCE, -2.11% | Beverages: Non-alcoholic | 100% |
| Philip Morris International Inc. | PM, -1.37% | Tobacco | 100% |
| Qualcomm Inc. | QCOM, -1.05% | Telecommunications Equipment | 98.6% |
| Broadcom Corp. Class A | BRCM, -1.01% | Semiconductors | 95.7% |
| Texas Instruments Inc. | TXN, -0.18% | Semiconductors | 87.5% |
| Lam Research Corp. | LRCX, +1.27% | Electronic Production Equipment | 86.5% |
| Altera Corp. | ALTR, +0.34% | Semiconductors | 85.5% |
| Diamond Offshore Drilling Inc. | DO, -3.01% | Contract Drilling | 85.1% |
| Nvidia Corp. | NVDA, +0.13% | Semiconductors | 84.5% |
| Micron Technology Inc. | MU, +2.48% | Semiconductors | 84.4% |
| SanDisk Corp. | SNDK, +0.08% | Electronic Components | 82.9% |
| Intel Corp. | INTC, +0.42% | Semiconductors | 82.4% |
| Microchip Technology Inc. | MCHP, -0.34% | Semiconductors | 81.0% |
| Western Digital Corp. | WDC, -1.39% | Computer Peripherals | 80.1% |
| Mondelez International Inc. Class A | MDLZ, -1.40% | Food: Major Diversified | 79.7% |
| Priceline Group Inc. | PCLN, -2.43% | Travel Services | 78.7% |
| Applied Materials Inc. | AMAT, +1.98% | Electronic Production Equipment | 78.3% |
| Yum Brands Inc. | YUM, -0.42% | Restaurants | 77.7% |
| Corning Inc. | GLW, -0.56% | Electronic Components | 76.6% |
| KLA-Tencor Corp. | KLAC, +0.50% | Electronic Production Equipment | 75.9% |
| Source: FactSet | |||
And back in September, William Watts provided a list of reasons why the strong dollar won’t suck the wind out of stocks.
But there’s no question that fourth-quarter earnings for the S&P 500 as a whole were very disappointing, in part because of the rising dollar. And for many of the companies listed above, the quarterly press releases showing comparisons of sales figures are likely to show painful declines during this period of quantitative easing outside the U.S.
If you have a long-term investment in a solid company that does a lot of business outside the United States and are otherwise satisfied with its business strategy, this may not be a sell signal, but you will need to be patient over the next year.
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