Stronger Dollar Hits U.S. Corporate Earnings

The dollar’s surge is reducing earnings at American companies from Procter & Gamble Co. (PG) to Pfizer Inc. (PFE) and DuPont Co. that make a large portion of their revenue abroad.

P&G, the world’s biggest consumer-products maker, today reported profit that missed analysts’ estimates in the quarter ended Dec. 31 after what Chief Executive Officer A.G. Lafley called “unprecedented” foreign-exchange rate fluctuations reduced sales by 5 percentage points. Chemical company DuPont and drugmakers Pfizer and Bristol-Myers Squibb Co. (BMY) all posted annual forecasts that trailed predictions, in part because of the stronger dollar.

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While 76 percent of Standard & Poor’s 500 Index companies have beaten analysts’ estimates so far this earnings season as the U.S. economy weathers a slowdown in global growth, the dollar’s advance is making American goods and services more expensive overseas, eroding sales. The greenback’s strength has taken some companies by surprise, prompting United Technologies Corp. (UTX) to cut an annual outlook that was just a month old yesterday.

“There wasn’t much choice here but to take the full year down,” United Technologies CEO Gregory Hayes said yesterday in an interview. His company, the maker of Pratt & Whitney jet engines, Sikorsky helicopters and Otis elevators, is now modeling for a euro at $ 1.10, after projecting the currency at $ 1.25 in issuing full-year earnings expectations last month.

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Money has flooded into dollar assets in recent months as the world’s largest economy outperforms its developed peers and the Fed prepares to raise its main interest rate from the zero-to-0.25 percent range it’s been in since 2008.

The Bloomberg Dollar Spot Index surged 5.6 percent last quarter, and has gained 2.1 percent so far this year.

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Drag on Earnings

P&G, which makes about two-thirds of annual sales outside of the U.S., said currency effects will continue to be a drag in the current fiscal year and reduce sales by 5 percent, leading to a decline of as much as 4 percent from a year earlier. Like Kimberly-Clark Corp. and other consumer companies, Cincinnati-based P&G was especially hurt by a slump in Venezuela, where falling oil prices have heightened the bolivar’s volatility.

Pfizer, the biggest U.S. drugmaker, forecast a decline in sales this year as patent expirations and the stronger dollar eat away at revenue. Bristol-Myers, the New York-based maker of cancer treatments such as Yervoy for melanoma, gets about half its sales outside the U.S. The dollar’s strength weighs down the company as it pursues growth by focusing on a new class of cancer drugs.

Caterpillar Inc. (CAT) also disappointed investors today with 2015 sales and earnings forecasts that trailed analysts’ estimates. The world’s largest mining equipment maker was hurt by falling oil and copper prices that threaten to lower demand from drillers and miners. The weaker euro and Japanese yen led to a drop in sales last quarter, Caterpillar also said.

Microsoft Corp. (MSFT), a year into a turnaround by CEO Satya Nadella, is also being tripped up in overseas markets by the stronger dollar, which, combined with a slump in China and Japan, curbed sales of business-software licenses.

To contact the reporter on this story: Cecile Daurat in Wilmington at cdaurat@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net Cecile Daur, John Lear

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