Economists and financial analysts have been expressing concerns for some time that the relative strength in the U.S. dollar versus the euro over the last few quarters is going to have a negative impact on the sales of Europe-focused U.S. firms. Unfortunately, the evidence is starting to pile up that those concerns regarding the competitiveness of higher priced U.S. goods were well founded.
An August 28th report from FactSet Insight delves deeper into the worrisome trend of American firms’ slipping sales in Europe. FactSet Senior Earnings Analyst John Butters points out that the strong dollar is clearly impacting sales across the Eurozone, and earlier corporate profit forecasts are now in doubt as the robustness of the safe-haven dollar is making American products less competitive.
Details on strong dollar and slumping European sales of DJIA components
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In his report, Butters highlights that 12 of the 30 companies in the Dow Jones Industrial Average broke down sales growth numbers for Europe for the second quarter. Among these 12 companies, 10 noted that they had seen a year-over-year decline in revenues. This is one more than the nine Dow 30 companies that reported a year-over-year sales decrease in the first quarter. As a matter of fact, a check of the FactSet database shows that this was the highest number of DJIA firms seeing a year-over-year decline in revenue from Europe since the third quarter of 2012.
Butters emphasizes that the stronger dollar was a big part of the clearly weakening revenue performance of DJIA components in Europe. Among the 12 companies in the Dow index that gave revenue growth numbers for Europe, all of them noted some negative impact on revenues or EPS (or both) for the second quarter due to unfavorable foreign exchange rates in their earnings calls. Moreover, six of the 12 firms went into some detail in discussing the weakness of the euro compared to the dollar in their quarterly earnings calls with investors.