Earnings season moves US dollar to center stage

NEW YORK (Reuters) – The dollar has moved from a supporting role to a featured player this earnings season, a boon to US multinationals which have benefited from the biggest quarterly year-on-year decline in the greenback in three years.

Since the start of October, at least 35 US companies have cited currency “benefits” or “tailwinds” and “weaker dollar” for boosting quarterly earnings, compared with few mentions a year ago, and some see that extending to the fourth quarter, a Reuters analysis shows.

“The quarter was one where the dollar weakened over the course of the quarter, more so than analysts expected,” said Jill Carey Hall, equity and quantitative strategist at Bank of America Merrill Lynch in New York.

“That’s what’s in part been helping multinationals,” Carey Hall said. “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 percent, the weakest showing since 2014, Thomson Reuters data shows.

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

US-based multinational companies 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,” Xerox chief financial officer William Osbourn said in the company’s Oct. 26 conference call after it 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,” Harley-Davidson chief executive Matthew Levatich told investors Oct. 17.

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 percent profit gains analysts have projected for the fourth quarter.

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