US blue-chips' overseas sales feel impact of strong dollar

International sales at US blue-chips ranging from PepsiCo to Google are being hit by the strong dollar and the emerging markets slowdown, despite the companies enjoying a recovery at home.

Overseas revenues account for about 30 per cent of sales at S&P 500 companies, highlighting the dollar's effects on earnings. The US currency's first quarter rise against a basket of major currencies was its sharpest since 1981, according to Barclays.

Currency swings weighed on technology groups' earnings, with Google saying its first quarter revenues would have been $795m higher at constant currencies and Microsoft saying the dollar lowered its reported sales by $534m.

Pepsi, the drinks and snacks group, blamed the dollar's strength for stagnant operating profits, increasing the amount it expects the strong currency to shave off its full-year earnings per share to 11 percentage points.

Consumer products group Procter & Gamble's third-quarter sales fell nearly 8 per cent to $18.1bn, reflecting an 8 percentage point hit from the dollar. Like other US multinationals, P&G is expecting the pummelling from the strong dollar to continue, forecasting a 5-6 per cent fall in net sales for its full year to the end of June.

Several companies said they planned to mitigate the adverse currency effects by cutting costs and sourcing materials closer to the countries in which they operate.

AG Lafley, P&G's chief executive, said: "We'll offset foreign exchange over time through a combination of pricing, mix enhancement and cost reduction."

The dollar's strength has weighed on emerging markets, where the International Monetary Fund expects growth to decrease to 4.3 per cent this year, as China's slowdown sends ripples across the global economy.

Caterpillar was among the companies reporting weaker demand for its equipment as emerging market economies continue to slow and energy companies back off from capital spending plans.

Both Pepsi and Caterpillar highlighted instability in Brazil as a cause for concern. The South American country is expected to have fallen into recession in the first quarter as a tumbling real and the Petrobras graft case exacerbate its economic woes.

Indra Nooyi, chief executive of Pepsi, said on Thursday that its Brazilian business was "still holding" but she added that the company was watching the region "very carefully".

<

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

Russia's economic woes took their toll on GM's first-quarter earnings as the carmaker's shrinking business in the country put a brake on profits as it took a $400m charge to cover the cost of revamping its operations.

Hershey's hopes for China also received a blow in the first quarter after the chocolate maker missed forecasts. John P. Bilbrey, head of the company, blamed the external economic environment in Beijing for its woes.

"We can expect an appreciating dollar to eat into the sales of export-oriented firms and compress the margins of those with substantial operations abroad," said Dana Saporta, an economist at Credit Suisse.

Earlier in the week, drinks group Coca-Cola also reported headwinds from the strong dollar, which wiped 7 percentage points from its pre-tax profit for the January to March quarter. Fast food retailer McDonald's saw currency woes exacerbated by company-specific problems including a loss in consumer confidence as it struggles to overhaul an image tarnished by food scandals in China and Japan.

Additional reporting by Anna Nicolaou and Eric Platt in New York

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation