Most Americans believe that a strong dollar is a good thing because it reflects the relative strength of the American economy compared to other global economies (and makes it cheaper to travel). That said, a strong dollar also has a significant downside, as it makes American goods cost more abroad, which typically has a negative impact on the total amount of goods sold.
A May 22nd report from FactSet Insight highlights that many major U.S. firms in the Dow Jones Industrial Average have been suffering revenue declines in Europe in the first quarter of this year. The large majority of these firms attribute the weakness to the impact of the strong U.S. dollar.
More on European revenue declines among Dow firms
FactSet Senior Earnings analyst John Butters points out that 12 of the 30 companies in the Dow Jones index broke out revenue growth numbers for Europe for the first quarter of this year. Among these dozen companies, nine reported a year-over-year revenue decrease in the area. This figure is greater than the eight DJIA firms reporting a year-over-year sales decrease in Europe in the fourth quarter of 2014. Of note, nine actually ties for the highest number of Dow Jones Industrials firms reporting a year-over-year decline in European revenues since the fourth quarter of 2012.
Strong dollar cited as key reason for weak European sales
Butters also notes the stronger dollar was obviously an important factor in the weaker revenue performance of U.S. firms in Europe. Among the 12 firms that gave revenue growth numbers for Europe, virtually all (11) noted a negative impact on revenues and / or EPS for first quarter related to unfavorable foreign exchange rates during in their earnings ccs. Of interest, execs in seven of these 11 DJIA firms made a point of focusing on the weakness of the euro relative to the dollar during their earnings calls.
Nothing last forever, and eventually the dollar will lose strength as the ongoing QE transfusion boosts European economies and emerging market economies pull out of the doldrums sometime the next few quarters. The cycle will take some time to mature, however, and barring unforeseen events, the dollar is not likely to weaken significantly until late in the year or next year.