Impact of U.S. Dollar Strength

U.S. Dollar

The strengthening of the U.S. dollar has been a highly covered topic in the news this year. The dollar has been on an upward trend against the Euro since early 2014, but really began to gain traction in Q1 of this year.

Dollar strengthening can be attributed to a number of factors, one significant contributor is the relative health of the U.S. economy, especially in the context of European difficulties (large stimulus plan ECB began in March, ongoing Greece debt crisis). The expectation that the Fed will be raising rates in the near future has also played a significant role in the rise of the dollar.

The Implications
While the strengthening of the dollar has become common knowledge, the difficulty becomes gauging the implications that this will have on specific sectors or individual stock performance. Perhaps U.S. companies are having difficulty exporting goods to Europe, impacting their sales. Or maybe companies with international operations are suffering from the strengthening dollar impact on earnings translation.

Using AlphaSense, we can run a keyword search that isolates specific language surrounding negative performance or threats of a strengthening / rising dollar.

As you can see in the chart below, this keyword search found only 43 companies discussing this in filings or transcripts during Q4 ’14. However in the following quarter (Q1), the number of results skyrocketed: 161 companies mentioned a threat from the strong dollar across 209 distinct documents. Interestingly, as the dollar cooled off a bit in Q2, we also saw a significant increase in the number of companies and documents that mentioned this material.


Why the Continued Discussion?

There are several possible explanations for this continued increase of strong dollar mentions. One is that companies are referencing historic performance in their filings and earnings calls. Another is that companies are discussing future uncertainty or projecting the future impact that the dollar will have on their business. Lastly, many of these comments are the result of analysts asking questions on earnings calls, surrounding how Forex volatility can impact future revenue and earnings estimates.

Using AlphaSense, we found statements such as:

Tiffany & Company ($TIF)
“The strong U.S. dollar is expected to have an adverse translation effect on sales throughout fiscal 2015.” (8K, March 20, 2015)

Under Armour ($UA)
“The impact of the strong dollar on our international results is negatively impacting our 2015 effective tax rate in excess of 100 basis points.” (Earnings transcript, February 4, 2015)

Ford Motor ($F)
“The strong U.S. dollar explains our lower revenue.” (10K, April 28, 2015)

Alcoa ($AA)
“These favorable impacts were partially offset by currency headwinds to revenue of roughly $70 million due to the strong U.S. dollar.” (Earnings transcript, April 8, 2015)

Metlife ($MET)
“Earnings were also negatively impacted by the strong dollar.” (Earnings transcript, May 7, 2015)

Research and analysis on the strength of the U.S. dollar — or any investment theme for that matter — is a simple matter when using the AlphaSense financial search engine. One search across all relevant documents produced the results I needed to write this article in seconds.

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