When it comes to the current round of currency war between Europe and the US, Europe is winning and the US is losing, and nowhere is this more obvious than the revenues of the largest US corporations.
Here is FactSet showing [3]that Dow 30 companies continued to report sales declines in Europe in Q3 as a result of the surge in the US Dollar.
“Foreign exchange impacts reduced sales by 7.4 percentage points, with notable year-on-year declines in the euro, yen, and Brazilian real. These currencies devalued versus the U.S. dollar by 15%, 14%, and 37% respectively.” –3M (October 22)
Coming into the Q3 earnings season, there were concerns in the market regarding the impact of slower economic growth and the stronger dollar relative to the euro on U.S. corporate earnings for the third quarter. With the final DJIA components (Home Depot and Wal-Mart Stores) reporting results for Q3 this past week, how did companies in the DJIA perform in the third quarter in Europe in terms of sales?
How did the revenue numbers for Q3 2015 compare to prior quarters?
Overall, 11 of the 30 companies in the DJIA provided revenue growth numbers for Europe for the third quarter. Of these eleven companies, nine reported a year-over-year decline in revenues. This number is equal to the number of Dow 30 companies that reported a year-over-year sales decrease in the previous quarter (9). For seven of these DJIA companies, the third quarter marked (at least) the third consecutive quarter of year-over-year declines in revenues from Europe.
Why? Thank the Fed that topline growth is declining as a result of the soaring dollar... even if the full impact won't be felt for a long time because for some unclear reason, earnings multiples are rising even as profitability itself is declining: "The stronger dollar appeared to be a factor in the weaker revenue performance of these companies in Europe. Of the 11 companies in the DJIA that provided revenue growth numbers for Europe, all 11 cited some negative impact on revenues or EPS (or both) for Q3 due to unfavorable foreign exchange during their earnings conference calls."
[4]
At some point the Fed will say enough, and that the time has come to give US corporations the benefit of a weak currency. It will probably come just as the Fed is stuck neck-deep in its "tightening cycle."
