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Strong U.S. Dollar Still a Concern for S&P 500 Companies in Q2'17


By John Butters  |  July 11, 2017

While the majority of S&P 500 companies will report earnings results for Q2 2017 over the next few weeks, 5% of the companies in the index (23 companies) have already reported earnings results for the second quarter. Given the number of concerns in the market, have these companies discussed specific factors that had a negative impact on earnings or revenues for the second quarter during their earnings conference calls?

To answer this question, FactSet searched for specific terms related to a number of factors (i.e. “currency,” “China,” etc.) in the conference call transcripts of the 23 S&P 500 companies that have conducted second quarter earnings conference calls through July 7 to see how many companies discussed these factors. FactSet then looked to see if the company cited a negative impact, expressed a negative sentiment (i.e. “volatility,” “uncertainty,” “pressure,” “headwind,” etc.), or discussed clear underperformance in relation to the factor for either the quarter just reported or in guidance for future quarters. The results are shown below.


Similar to previous quarters, the strong U.S. dollar has been cited by the most companies (14) in the index to date as a factor that either had a negative impact on earnings or revenues in Q2, or is expected to have a negative impact on earnings and revenues in future quarters. Most companies did not cite a specific currency when discussing the negative impact of the strong U.S. dollar. For the companies that did mention a specific currency, the highest number of companies cited the peso (four) and the pound (three). Comments from these seven companies are published on the next page.

It is interesting to note that while only three S&P 500 companies discussed a specific negative impact from “wages,” five other S&P 500 companies discussed the subject during their earnings calls.  However, since these five companies did not highlight a specific negative impact from wages, they were not included in the chart below.  Comments from all eight of these companies are published on the next two pages. 

Mexican Peso: Negative Impact

“I think the biggest headwind that we see is really coming from FX in the business. On a year-over-year basis, in Q1, we actually had a bit of a tailwind from FX. But we know that right now, the peso is sitting below MXN 18 to the $1. And we disclosed in the beginning of the year that our guidance was based around MXN 20 to the $1 that presents a pretty significant headwind for us.” –Constellation Brands (June 29)

“I mean our guidance range is $4.05 and $4.13, so it's a rather large range and, as I said before, I mean the A&P spend is broadening out. It might be a couple of million dollars, so it may be up $0.01 a share. So, I don't think we've really moved. FX though, we did move on the top line from 2% to 1%. But at the operating profit line and at the EPS line, we still kept to our last guidance. It's about a 2% impact bottom line. Remember, we have an unconsolidated operation in Mexico, which is driving that with the peso devaluation.” –McCormick & Co. (June 29)

The two FX items, as compared to a year ago during the third quarter, foreign currencies where we operate were mixed relative to the U.S. dollar, from an aggregate weakened versus the U.S. dollar, most notably in Canada, the UK and Mexico, and this resulted in foreign earnings in Q3, when we convert back into U.S. dollars for reporting purposes, being slightly lower by about $5 million, or about $0.01 a share, than if the exchange rates had been flat.” –Costco (May 25)

“As Bill said earlier, we were challenged by difficult foreign exchange rate in regard to the peso. While sales in base currency were above plan this quarter, the devaluation in the peso was much greater than we assumed at the start of the year. This has created a headwind, and our EPS was significantly impacted.” –AutoZone (May 23)

British Pound: Negative Impact

“So now, let's look at the financial highlights for the quarter. As we expected, currency, again, had a negative impact. The U.S. dollar being 12.5% stronger versus sterling than in the comparable quarter last year. Sales for the quarter were $30.1 billion, up 2.1% versus the comparable quarter. On a constant currency basis, sales were up 5%.” –Walgreens Boots Alliance (June 29)

“But underlying transactional, the first half of the year, post-Brexit, you saw what the pound, the euro did that really makes it hard on a year-on-year comparison that first half of the year as our foreign units are buying in U.S. dollars these spices and herbs.” –McCormick & Co. (June 29)

“Number six, FX. The two FX items, as compared to a year ago during the third quarter, foreign currencies where we operate were mixed relative to the U.S. dollar, from an aggregate weakened versus the U.S. dollar, most notably in Canada, the UK and Mexico, and this resulted in foreign earnings in Q3, when we convert back into U.S. dollars for reporting purposes, being slightly lower by about $5 million, or about $0.01 a share, than if the exchange rates had been flat.” –Costco (May 25)

Higher Wages: Negative Impact

“Looking at the P&L. Food and beverage was favorable 10 basis points with commodities inflation essentially flat this quarter. Restaurant labor was unfavorable 10 basis points as continued wage pressures slightly offset productivity gains.” –Darden Restaurants (June 27)

“Freight Q4 results saw revenue quality improving. Year-over-year, Freight's yield growth has improved sequentially as Freight continues to work toward a better balance of volume, pricing, and capacity. Operating results were slightly lower due to higher salaries and wages and increased information technology expenses that offset the benefit from the higher base rates.” –FedEx (June 20)

“This quarter, we reported our second consecutive quarter of challenged sales and profitability performance following 41 quarters of double-digit growth in EPS. Clearly, some of our recent challenges have been macro, like timing of IRS refunds, rising wages and interest rates and peso weakness. But macro challenges and benefits come and go.” –AutoZone (May 23)

Higher Wages: Other Comments

“Next, we expect the price of certain LED components to continue to decline, though at a decelerating pace, while certain other costs, including certain components and commodity costs as well as certain employee-related costs, primarily due to further investments in associate head count, wage inflation and healthcare costs will increase somewhat. We expect to mitigate some of the impact of these rising costs through certain pricing initiatives, productivity improvements, and product cost reductions, though the timing of these initiatives might lag the timing of these increased costs.” –Acuity Brands (June 29)

“Expenses increased 5% for the fourth quarter and 6% for the fiscal year. The expense growth in both periods was impacted by higher wages and related expenses due to growth in head count, primarily in our operations areas. Expense growth was moderated by lower variable selling costs.” –Paychex (June 28)

“Okay, so first of all, Sue is saying that payroll was slightly above where we had planned…Yeah, not materially…And again, a lot of it is chasing wage rates.” –Bed, Bath, & Beyond (June 22)

“Generally speaking, in spite of the often noisy political environment, there continues to be a general sense of optimism in the market. There continues to be a perception that jobs are being created across the country and that wages are generally moving positively. The often discussed labor shortage in many sectors of the economy is translating into a sense that many job sectors' compensation is moving up. And while much of the data collected by the government doesn't seem to reflect significant wage growth, the customers visiting our Welcome Home Centers are reflecting an optimistic sentiment.” –Lennar (June 20)

“But I think we do pretty well in trying to drive the things in the right direction, but not touching certain things. We're not going to tweak wages a little bit less or have an increase that's a little bit less.” –Costco (May 25) 

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John Butters

Vice President, Senior Earnings Analyst

Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His weekly research report, “Earnings Insight,” provides analysis and commentary on trends in corporate earnings data for the S&P 500 including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).


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