“The decline in adjusted EPS of 4.3% vs. the prior year was entirely due to the negative impact of movements in currency rates in the translation of our results, particularly the weakening of the euro compared to prior year.” –Johnson & Johnson (April 14, 2015)
Coming into the Q1 earnings season, there were concerns in the market regarding the impact of the stronger dollar relative to the euro on U.S. corporate earnings for the first quarter. With the final DJIA components (Home Depot and Wal-Mart Stores) reporting results for Q1 this past week, how did companies in the DJIA perform in the first quarter in Europe in terms of sales? How did the revenue numbers for Q1 2015 compare to prior quarters?
Overall, 12 of the 30 companies in the DJIA provided revenue growth numbers for Europe for the first quarter. Of these 12 companies, nine reported a year-over-year decline in revenues. This number was above the number of Dow 30 companies reporting a year-over-year sales decrease in the previous quarter (8). In fact, this was the highest number of Dow 30 companies reporting a year-over-year decline in revenue from Europe since Q4 2012 (9).
The stronger dollar was clearly a key factor in the weaker revenue performance in Europe. Of the 12 companies in the DJIA that provided revenue growth numbers for Europe, 11 cited a negative impact on revenues or EPS (or both) for Q1 due to unfavorable foreign exchange during their earnings conference calls. Seven of these 11 companies specifically discussed the weakness of the euro relative to the dollar during these same earnings calls.