BOON FOR U.S. MNCS

More companies citing currency ‘benefits’ or ‘tailwinds’ for boosting quarterly earnings since last month

strategist at Bank of America Merrill Lynch.

“That’s what’s in part been helping multinationals,” said Carey Hall.

“They have seen some of the strongest results so far.”

The US dollar index’s average in the third quarter fell from its year-ago level by about 2.5 per cent, Thomson Reuters data showed.

The index has recovered from its recent lows, but remains down about seven per cent for the year.

US-based multinational firms can benefit the most from declines in the dollar, which make overseas sales more valuable when translated back into the US currency.

Among companies citing a positive dollar impact were Alphabet Inc, International Business Machines Corp and other names in technology, which has the highest percentage of foreign sales within the S&P 500.

Others included Axalta Coating Systems Ltd, W.R. Grace, Coca Cola Co and Xerox Corp, which said the third quarter was the first in 13 that a weaker dollar boosted the company’s earnings, by about one percentage point.

“And we’re expecting that to improve into Q4 based upon quarter-end rates,” said Xerox chief financial officer William Osbourn after the company reported higher-than-expected results.

The weaker dollar “should help with the discounting pressure from the non-US manufacturers, so that’s a good sign,” HarleyDavidson chief executive Matthew Levatich.

The dollar’s weakness has helped offset the impact of a trio of hurricanes that took a heavy toll on companies in the third quarter. If the benefit continues, it could help companies hit the 11.7 per cent profit gains analysts have projected for the fourth quarter.

With results in from more than three-quarters of the S&P 500 companies, third-quarter profit growth is estimated at eight per cent, up from 4.3 per cent three weeks ago, Thomson Reuters data showed.

Much of the improvement has come with stronger-than-expected technology results. Ninety per cent of S&P technology index names are beating earnings expectations, while 72 per cent are surpassing estimates in the overall S&P 500, the data showed.

Materials companies’ earnings, which have benefited from higher commodity prices tied to the weaker dollar, have had a high percentage of beats as well.

Adding to the weaker dollar’s benefit has been better global economic strength, and that is also why multinational companies have performed better than others this earnings season, said Carey Hall.

S&P 500 companies with 50 per cent or more of sales coming from outside the US have estimated profit growth of 16.7 per cent for the third quarter, compared with 5.5 per cent for companies with less than 50 per cent of non-US sales, Thomson Reuters data showed.

Stocks of big multinationals also have outperformed, with the Dow Jones global titans index up about 3.3 per cent since October 1. The small-cap Russell 2000 index is up just 0.2 per cent since then. Reuters