And You Thought Q2 Earnings Were Bad?

Tyler Durden's picture

In a world of slow stagnating growth, foreign exchange variations can have a dramatic impact on top and bottom lines - especially in a market where hedges are flummoxed by government-influenced gap-after-gap and mismatch. As Goldman notes the headwinds of FX into Q2 are acute and have been painful for multi-nationals - with several high-profile companies missing and or adjusting down forecasts due to the rise of the US dollar. In spite of all the focus on Q2 earnings, we remind investors that Q3 and Q4 will also see significant currency headwinds - an impact we (and Goldman) believes is far from priced in for many companies in the market - a total top-line drag of over 5% YoY.

The year-over-year impact of FX rates has become a drag on growth for the typical multinational in 2012

YOY changes assuming current spot rates of 1.23 USD/EUR, 1.56 USD/GBP and JPY/USD 78.60 hold through the rest of the year


Via Goldman Sachs:

  • Our model estimates that FX boosted the top line of a typical multi-national company by nearly 2.5% in 2011, but that the yoy changes should result in close to a 2.6% headwind this year – a total expected yoy drag of more than 5%.
  • We emphasize the continuation of the FX drag as we enter 3Q, where we model relative 7% yoy deterioration due to FX, based on current spot rates.
  • During the on-going 2Q reporting season several multi-national companies have cited FX as a considerable headwind.

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realtick's picture

At least Apple always beats...oh wait.

Dr. Engali's picture

Don't worry the iPhone 10.5 is coming out soon that will help save earnings.

booboo's picture

Apple is going to get sauced in Q3 but I ain't laying any money on the velvet in this back alley casino.

sablya's picture

But an iPhone without google: at least no youtube, nor google maps.  That may hurt both Apple and Google's bottom lines.

HD's picture

I just bought a Nexus 7 and I'm (so far) very impressed. Apple was the only game in town and enjoyed a virtual monopoly - the Kindle Fire and no name tablets were a joke. Google is going for Apples throat - and Google Fiber will be a game changer.

HaroldWang's picture

Very different products for different uses but I agree. Apple must make a smaller tablet. 

Also, anyone who mentions Kindle Fire as a viable tablet is insane. Nexus is a reall tablet in that format. Fire and AMZN need to get a reality check.

Neethgie's picture

why is goldmans model assuming the spot of 1.23 eur/usd when stolper says its definitely going to 1.30....

Jlmadyson's picture

Uggh, pay no attention to that!

Dr. Engali's picture

Well if that's Goldmans model we all know what that means. Blowout earnings this quarter. Just assume the opposite.

AssFire's picture

I love a good head wind.

JackT's picture

Why does it sound like we are sailing a ship?

AssFire's picture

shiver me timbers mate! this vessel runs on government act like you fuckin think you built it.

slewie the pi-rat's picture

b/c we are rudderless in a sea of fraud; becalmed; and sinking in an entire school , er...  university of sharks?

OpenThePodBayDoorHAL's picture

let's see I think it's a murder of crows, a gaggle of geese, and a confederation of dunces

Michelle's picture

Ah hell, don't worry, they'll just implement a NEW AND IMPROVED NYSE RETAIL LIQUIDITY PROGRAM, designed to help mom & pop investors to keep from getting the shaft - they'll have a new name for their pilot program, FREAKING XPONENTIAL KNOCK YOUR SOCKS OFF HOLY COW BUY STOCKS NOW BEFORE THEY GO TO THE MOON PROGRAM.

Neethgie's picture

is that triple levered?

GMan_'s picture

I think it will be a Credit Suisse product that's 5x leveraged.

Meesohaawnee's picture

just tell us what the algos are programmed to be the high of the year GS.. analysis. Irrellevant

disabledvet's picture

this is the beauty of trading in the USA: "90% of the market is domestic.", sorry..."Europe" fast becoming this way as well. "economies so big they generate their own innovation and their own return." You are either in one or the other...but to me "not both." I simply don't understand the EZ AT ALL. With a fully united Germany however..."that's one BIG anchor tenant!" Of course you know what they say about the bird called a Cardinal don't you? "He attacks his reflection because he can't stand the idea of someone as beautiful as he being in the neighborhood."

zorba THE GREEK's picture

The next assault on the dollar by Bernanke will be so massive that the multi-nationals

will be dancing in the streets.

chump666's picture

EUR going nowhere but down, as equities start to cap in the overbought ranges and begin to have a mini correction...or crash. It's all about this:

*Outflows spark bounce in onshore CNY fwds as corporates hoard USDs
*Offshore USD/CNH fwds also climb as RMB gain bets fade


l1b3rty's picture

let's kick up the flouride at the GS headquarters

spinone's picture

As long as OPEC only takes dollars for oil, no worries.

SIOP's picture

This article is so cute, Makes me all misty eyed remembering when earnings and PE ratios actaully had meaning.

HD's picture

Misty water colored memories of the way we were....

Oldballplayer's picture

With a nod to the dead guy sitting over in the corner.

Savyindallas's picture

But wtih companies all cooking the books so much, why should earnings and PE ratios mean anything.

roadsnbridges's picture

Pifilil, the majesty of our King Obamaloney will make all FX worries disappear.  Moochelle is now working on I-pad recipes.  Fear not; prosperity is right around the corner - ahead of C. Hendricks tits.


(Probably get booted for this as well, even tho McBags first posted it.  Now there is a forward looking contibutor.)

WoodMizer's picture

Merry Fucking Christmas 2012!

sitenine's picture


YOY changes assuming current spot rates of 1.23 USD/EUR, 1.56 USD/GBP and JPY/USD 78.60 hold through the rest of the year

Good luck with that, right?

Stay tuned!  Things are quickly becoming harder and harder to hold together, aren't they?  Fans?  check.  Shit?  check.

The foreplay is just about over here folks, and it's been real fun.  LIEBOR will end up being a minor side note when this thing finally decides to blow its load.

HaroldWang's picture

Yes, many companies did cite currency headwinds as an "excuse" for missing earnings/revenue. And guess what? They were forgiven by Mister Market. The same way they will be forgiven next Q when they pull out the same card with much less expected of them. Win, win for stocks. Lower the bar and beat, stock goes up. Meet or miss a bit, blame currency, stock goes up. 

Sorry but I really can't see a downside in this market. Economy, oh god yes, but market, keeps on truckin'

Central Bankster's picture

Just the same way PCLN was forgiven for a small miss last night? No. current earnings expectations are reflected by high stock prices which do not match reality.

chump666's picture

correction is setting in.

could be really nasty, sharp and painful.

vertexa's picture
Nearly 85% of the S&P 500 companies reported, just 51% have exceeded net profit expectations, and only 40% or so beat on revenue and more than 50% of the companies have lowered estimates for Q3