Companies with Over Half of Sales Overseas See 9% Profit Decline
Domestic Companies Experience Only 3% Decrease
[Asia Economy Reporter Haeyoung Kwon] Last year, 'King Dollar (strong dollar)' caused greater damage to the earnings of U.S. companies with a high proportion of overseas sales compared to domestic companies. Apple, the world's largest company by market capitalization, was also directly hit by the King Dollar.
According to the Wall Street Journal (WSJ) on the 8th (local time), a survey by market research firm FactSet showed that the profits of U.S. companies generating more than half of their total sales overseas decreased by 8.7% in the fourth quarter of last year compared to a year earlier. In contrast, the profits of companies with most of their sales occurring in the U.S. only fell by 3% during the same period. This survey was conducted on 55% of all S&P 500 companies that have reported earnings so far.
Before the dollar's value surged, companies with a high proportion of overseas sales showed strong performance. The profits of U.S. companies earning 50% of their sales from overseas increased by 18.5% in the first quarter of 2022, which was five times higher than domestic-based companies (3.3%). In the second quarter, profits rose by 12.3%, significantly outperforming domestic companies (1.4%). The situation reversed in the third quarter of last year. In Q3, the profit growth rate was 2.7%, similar to domestic companies (2.3%), and in Q4, it declined further, showing a larger decrease than domestic companies.
Apple, the world's leading smartphone company, was also directly impacted by the strong dollar. In the fourth quarter of last year, Apple's revenue was $117.2 billion, down 5% from the same period the previous year. This was the first revenue decline in about four years since Q1 2019. Both smartphone and PC sales decreased. At that time, Apple CEO Tim Cook cited production disruptions in China, the macroeconomic environment, and the strong dollar as reasons for the revenue decline. Apple explained that after adjusting for currency fluctuations, revenue during this period was estimated to have increased.
Since the U.S. Federal Reserve (Fed) began aggressive tightening last year, the dollar's value continued to rally, peaking in September before declining. However, the WSJ analysis notes that concerns among companies remain as the dollar is still at a high level. The dollar index, which measures the dollar's value against the currencies of six major countries, stood at 103.41 on the 8th, 8.12% higher than February 8 of last year (95.64).
However, with recent inflation easing fueling expectations that the Fed will pause its rate hike cycle within the year, the trend of dollar value easing that began at the end of last year is expected to continue. Matt Otten, Chief Market Strategist at Raymond James Investment Management, predicted, "There is no doubt that a weaker dollar going forward will be positive for corporate earnings."
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