Wednesday, August 1, 2012

Strong Dollar, Weak Earnings

A common message from U.S. based multinational companies during recent earnings announcements is the pain of the strong dollar. While most multinationals use various hedging procedures to protect against currency fluctuations, the fact that the dollar has appreciated by about 5 percent against the euro in the most recent quarter has caught many by surprise. A strong dollar makes U.S. products more expensive overseas and the foreign sales are worth less when they are converted back to dollars. To give a couple of examples, currency losses reduced Tupperware's sales by about 10 percent and reduced Colgate-Palmolive's profits by about 10 percent as well.