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A strong dollar is weighing on earnings, report says

Key Points
  • North American companies reported $20.8 billion in currency value loss for the fourth quarter of 2018, according to a new report.
  • That’s the greatest quantified currency headwind in 12 quarters.
  • U.S. medical and biotech companies hit especially hard.
A cashier at a Travelex Bureau de Change counts dollars in exchange for pounds in London.
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The dollar's strength and trade tensions abroad created currency headwinds at home.

Multinational companies based in North America reported a collective $20.8 billion currency value loss in the fourth quarter of 2018. That's according to a new report from Kyriba on currency losses quantified during quarterly earnings calls. The firm counsels companies on financial risk and compliance. That figure is up $9 billion from the prior quarter and the highest since Q4 2015.

The average EPS impact reported by North American companies was $0.05, according to the report. That's up 25 percent from the third quarter and the highest EPS hit from currencies since Q2 2016. Around 300 North American companies quantified negative currency impacts during their fourth quarter earnings calls, a 14 percent increase from the quarter before.

A strong dollar can create headwinds for U.S. companies reporting earnings from abroad. When foreign currencies are comparatively weak against the greenback, it takes more to buy U.S. dollars when translated into the home currency. The actual impact of foreign exchange is likely higher, as companies aren't required to report currency losses. Many companies report their revenue in "constant currency" alongside unadjusted figures.

The report cited medical equipment and biotechnology as two of the most-impacted industries, partly due to ongoing trade tensions between the U.S. and China.

"The impact of North American headwinds represents the most significant currency hit to top-line revenue in the last 12 quarters," said Wolfgang Koester, chief strategist for Kyriba. "The ongoing U.S.-China trade war as well as other geopolitical events such as Brexit have had the greatest negative impact on currency holdings."

On the other side of the Atlantic, European companies saw a comparative decrease in negative currency impacts in the fourth quarter. Companies reported $3.1 billion in currency value loss, down from $3.8 billion in the third quarter and $22.9 billion in Q1 2018.

The report included analysis of earnings calls from 1,200 publicly traded companies from North America and Europe doing business in more than one currency and with at least 15 percent of their revenue coming from overseas.