Surging dollar hurts corporate earnings

Associated Press

WASHINGTON

The victims vary: Fast-food colossus McDonald’s. Technology giant Oracle. Medical-device maker Cooper Cos.

The culprit’s the same: A surging U.S. dollar

A symbol of American economic might, the rising dollar is denting the earnings of U.S. companies that operate overseas. The damage started showing up in results for the July-September period, and the picture likely will get uglier as companies report earnings for the final three months of 2014.

A few months ago, analysts had expected a double-digit annual rise in corporate profits in the fourth quarter. Now, in part because the dollar is carving into earnings, they’re forecasting just 4.6 percent overall earnings growth for companies in the Standard & Poor’s 500 index.

A prolonged drop in profits risks rattling investors and pressuring stocks.

Among major industries, technology companies and producers of energy and raw materials generally derive the highest percentage of revenue from abroad, according to S&P Dow Jones Indices.

Since June 30, the dollar has jumped 16 percent against the Japanese yen. Against the euro, it’s up 18 percent. Against the Brazilian real, nearly 20 percent.

Investors are buying dollars and driving it higher largely because the American economy is humming while other economies are sputtering. In Europe and Japan, growth has flat-lined. In China, it’s slowed.

Investors also are seizing on higher interest rates in the United States: The super-safe 10-year U.S. Treasury note yields 1.74 percent — miserly by historical standards but richer than the 0.46 yield on 10-year German government bonds or the 1.59 percent on 10-year Spanish bonds.

A higher-valued dollar delivers a double blow to American exporters: It makes U.S. products costlier — and therefore less competitive — in foreign countries. And it means the revenue that U.S. companies collect in, say, euros is worth fewer dollars once they bring the money home. In that way, the strong dollar shrinks profits, too.