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Exclusive: Forex swings cost U.S. firms $6 billion in fourth-quarter revenue - study

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. Picture taken August 2, 2013. REUTERS/K
U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. Picture taken August 2, 2013. REUTERS/K

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - Swings in the foreign exchange market cost U.S.-based multinational corporations nearly $6 billion in revenue in the fourth quarter, according to a report by currency risk management consulting firm FiREapps on Monday.

That was a 39 percent increase from the third quarter. With the exception of the second and third quarters of 2012, at the peak of the euro zone crisis, the fourth-quarter losses were the highest since FiREapps started tracking the effects of currency on earnings in 2011.

Phoenix-based FiREapps analyzes the currency effects on quarterly earnings of 846 publicly traded companies, a subset of the Fortune 2000 companies that generate at least 15 percent of international revenue in two or more currencies.

The average hit to earnings per share from foreign exchange among the companies disclosing impact on EPS was $0.03 in the fourth quarter, the same as in the previous quarters of 2013. Since FX managers from leading multinationals typically have a target of less than $0.01 in EPS impact, a hit to EPS that averages $0.03 is material, FiREapps said.

More and more companies have made a conscious effort to hedge against sharp currency movements because sudden gyrations in major crosses can eat away at a company's bottom line. The dollar in 2013 managed to eke out a gain of 0.3 percent, but for the most part of this decade, the greenback has been on a downtrend.

For 2013, the total reported negative impact was $17.8 billion, a 64 percent drop from the previous year, the report said. In 2012, the negative hit to earnings was $50 billion.

"The trend is definitely improving, but there are still a lot of companies that are unprepared," Wolfgang Koester, chief executive of FiREapps, told Reuters.

He added that the improvement in 2013 relative to 2012 was due to the fact that the euro zone debt crisis abated, stabilizing the euro. Last year, the euro gained 4.2 percent against the dollar.

For the fourth quarter last year, the Brazilian real, Japanese yen and Canadian dollar had the largest negative impact on corporate earnings. The yen lost nearly 7 percent of its value against the U.S. dollar in the last quarter. The Brazilian real fell more than 6 percent, while the Canadian currency dropped 3 percent against the greenback.

The FiREapps report also showed that 196 companies reported material negative currency issues in the fourth quarter. That represented a 4.4 percent decline from the third quarter and a 7 percent decrease from the 2012 average.

Fifty-eight companies, meanwhile, reported positive currency effects in the fourth quarter. In total, the net quarterly impact from currency volatility totaled at least $5.65 billion in losses, the highest in 2013, FiREapps said.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Steve Orlofsky)

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