Exchange Rates Deal $22.56 Billion Blow to Companies' Earnings

By Nina Trentmann 

Uncertainty around tariff tensions, Britain's exit from the European Union and the state of the global economy is expected to drive foreign currency-related losses at North American and European companies in the coming months, following a $22.56 billion blow to balance sheets in the second quarter, according to a company that tracks exchange-rate effects.

The British pound has fluctuated in recent days amid news around U.K. Prime Minister Boris Johnson's Brexit deal, while the U.S. dollar remains near a multiyear high and regional currencies, such as the Turkish lira, have traded lower.

"Companies will need to improve their currency risk management strategies," said Wolfgang Koester, a senior strategy officer at Kyriba Corp., a treasury software provider that tracks currency effects on companies' earnings. "Otherwise, they will keep having losses in this volatile environment."

Companies including Honeywell International Inc., Johnson & Johnson, Abbott Laboratories and Philip Morris International Inc. in recent days highlighted the negative impact of currency effects on their third-quarter earnings.

Abbott Laboratories, a manufacturer of health-care products, reported a 4% hit on sales from foreign exchange rates in key emerging markets such as India, Brazil, Russia and China. Johnson & Johnson, meanwhile, reported sales in markets outside the U.S. were 2.8% lower because of currency effects.

Philip Morris's net revenue was reduced by $115 million because of currency effects in the third quarter, resulting in a foreign-exchange impact of $931 million since the beginning of the year. "Currency is something that is very hard to predict," Chief Financial Officer Martin King said in an interview Thursday. The company hedges against movements in some currencies, including the Japanese yen, he said.

During the second quarter, North American companies listed on the New York Stock Exchange and Nasdaq recorded currency-related losses of $21.01 billion, down from $23.39 billion in the first quarter, according to Kyriba. Exchange rate-related losses at these companies have exceeded $20 billion for three consecutive quarters.

European companies listed on the FTSE 100 and Euronext reported a decline in foreign-exchange effects to $1.55 billion in the second quarter, down from $3.31 billion in the first quarter of 2019, Kyriba said.

Write to Nina Trentmann at [e-mail]

(END) Dow Jones Newswires

October 17, 2019 17:24 ET (21:24 GMT)

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