The purpose of trying to frame revenue and earnings as a figment of dollar calculations is, of course, to make it seem as if these are just numbers that have little meaning. The emphasis on “constant currency” terms is not just a means to alter the figures but the very meaning itself. As IBM has constantly proclaimed, yes, its revenue fell by 13% but only 0% when taking out the currency. Such an effort is disingenuous in at least two ways; that 0% isn’t very good to begin with but sounds much, much better than -13%; and that the -13% isn’t “real” and therefore should be totally discounted when thinking about the company.
This has macro implications because it essentially tries to break any ties of the stronger “dollar” to the real economy. Companies (and economists) are saying not to worry about the hit to results as they aren’t meaningful as anything other than fungible numbers, yet there is a growing disparity with the rhetoric. Often that has been met by increasing stock repurchase authorizations or even actual plans for “shareholder return of capital” (if the “dollar” isn’t “real” then why bother with the buyback appeasement?).
As the “dollar” has deepened, that is no longer enough as results are now turning management toward actual activities. In other words, once again, the “dollar” becomes merely the transmission mechanism between financial perceptions and real activity. The emphasis to this point has been on the financial, but Q1 so far is changing that hierarchy and very quickly.
I’ll highlight just three multi-national companies here, but you can practically pick any that you want and get much the same downplayed admissions.
P&G gets the majority of its sales outside North America, making it especially vulnerable to currency fluctuations. Foreign exchange damped sales by 8 percentage points in the quarter and will reduce revenue for the year by as much as 7 percentage points, the company said. Chief Executive Officer A.G. Lafley said that P&G will keep working to cut costs to make up for the currency headwinds.
“As we have done before, we’ll offset foreign exchange over time through a combination of pricing, mix enhancement and cost reduction,” Lafley said in the statement.
PepsiCo Inc., the world’s largest snack maker and second-largest beverage company, vowed to keep a tight lid on expenses this year as the strong dollar takes a bigger bite out of overseas sales than expected.
The company said on Thursday that it remains on track to achieve $1 billion in cost savings this year and plans to return $8.5 billion to $9 billion to shareholders. Currency effects have made it harder to meet those goals, increasing the urgency to trim expenses and maintain the prices of its snacks and beverages.
Chemical maker DuPont (DD.N) reported lower sales in all of its businesses and said a strong dollar would take a bigger toll on its full-year earnings than it had expected…
DuPont is targeting annual cost cuts of $1 billion and expects the savings to add 40 cents per share to 2015 profit.
The company expects to meet two-thirds of its cost savings target from work force reductions and the remaining from streamlining its asset base by consolidating facilities, or outsourcing some services.
These are just 3 that have reported this week (Pepsi and P&G just today). While these cost-cutting efforts will not be directed solely within the United States, the US economy will not be excluded either. Further, that may not really be much of a distinction at all, as the fact that all these companies are seeking to, again, over-manage their cost structure has real implications for the global economy. It is exceedingly difficult for even overseas economies to grow, and thus the global expansion to support all others, when so many businesses care so little about expansion themselves, preferring instead, by the “dollar” no less, to do the opposite.
The rising “dollar” is very real, and it is the size of the move that ultimately matters. The huge surge is not just a negative reflection on funding markets, it is ultimately how that turns into the worst forms of economic distortion. Once again, we see that the “strong dollar” isn’t the “rising dollar”, instead it is stability that offers the only protection and the only means by which expansion truly occurs. Central banks offer only artificial versions that can, at most, bid but temporary reprieve; far more often than not acting as the very agent of instability in the first place.