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Multinational earnings hit hard by strong dollar

Published 27/01/2015, 15:34
© Reuters. U.S. dollar bank notes are seen in a bank in Budapest
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By Chuck Mikolajczak

NEW YORK (Reuters) - As earnings season heats up, a slew of large multinational companies have posted disappointing results and outlooks with a common culprit to blame - a strong dollar.

The impact has crossed sectors, ranging from industrials to technology, affecting companies that garner a large portion of their sales from outside the United States.

After hitting a 6-1/2 month low in May, the dollar (DXY) has surged nearly 20 percent against a basket of major currencies, putting companies that derive a large portion of their sales from overseas at risk as their products become more expensive for consumers in other currencies.

Microsoft (O:MSFT), which gets nearly three-fourths of its revenue from overseas, also succumbed to pressure from the stronger dollar, although the tech giant did not specify the impact. Its shares plunged 10.4 percent to $42.11, the biggest drop since July 2013.

United Technologies (N:UTX), which gets about 62 percent of its sales from outside the United States, cut its 2015 full-year outlook due to the negative impact from the stronger dollar, sending its shares down more than 1.5 percent to $117 on Tuesday.

Fellow industrial 3M Co (N:MMM) shed 0.1 percent to $164.02 after it posted lower quarterly results and reduced its 2015 outlook due to foreign exchange. The Post-It notes maker garners more than 60 percent of its sales from overseas.

"This is a slow motion crash," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

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"A lot of these companies, their expenses are taken in the local currency where they are operating – sales, research and development, whatever their out of North America operations are, but then when you roll them back up, it takes a couple of quarters for this to actually be shown."

Other notables names citing currency headwinds so far in the earnings season include Johnson & Johnson (N:JNJ), Pfizer (N:PFE) and IBM (N:IBM).

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