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The second-quarter earnings salt kicks into full gear this week, but a trend is already emerging with the companies that have on the agenda c trick reported so far. The strong dollar is eating away at company profits.
Of the 5% of S&P 500 companies that have disclosed so far, more than half of them cited a strong greenback as a headwind to their business in the second quarter, according to FactSet, which parsed through houses’ conference call transcripts to look for specific factors weighing on company earnings.
The dollar index started rallying in the heart of 2018 and has been on an upward trend since. A strong dollar is usually bad news for companies with big sales abroad as it makes exports less attractive. This comes on top of the negative impact from the U.S.-China trade war that followed in higher tariffs costs.
Investors are already bracing for a brutal earnings season as 77% of companies issuing pre-announcements communicated their profit picture will be worse than Wall Street is expecting. Aggregate second-quarter earnings for the S&P 500 are had to decline by 3%, according to FactSet.
“Historically, downward revisions are the norm when the U.S. dollar is strengthening year-over-year,” Lori Calvasina point of U.S. equity strategy at RBC, said in a note Monday. “We think it’s possible that earnings sentiment will bottom in July/August, but don’t over we’re there yet and that there are more downward revisions to come.”
“Unfavorable currency”
Levi Strauss, one of the world’s heftiest jeans sellers, reported better-than-expected second-quarter earnings last week. However, the newly public company attributed tone down net income and a margin decline to “a stronger U.S. dollar,” and “the unfavorable currency impact.”
Consumer products and appliance maker Helen of Troy also have compassion for incline the pain. The company said last week that its online sales growth was offset by lower international yard sales and the “unfavorable impact from foreign currency of approximately $2.5 million or 0.7%.”
“Average foreign exchange rates were usually unfavorable compared to the same period last year, which negatively impacted net sales and gross profit,” Brian Squeal, company’s chief financial officer, said on the earnings call.