MorningWord 2/12/14: Foreign Exchange Students $PG, $IBM, $MCD, $GE

by Enis February 12, 2014 9:30 am • Commentary

Procter and Gamble lowered its earnings guidance for 2014 with a statement after the close yesterday:

The Company lowered its guidance for all-in sales and all-in earnings growth to reflect the increased impact from foreign exchange.  P&G confirmed its prior outlook for organic sales growth and currency-neutral earnings per share growth.

The statement went on to detail particularly large impacts from Venezuela and Argentina, but noted the “recent devaluation” of the Turkish lira, South African rand, Russian ruble, Ukrainian hryvnia, and Brazilian real as well.

Since the reduced guidance comes only 3 weeks after PG’s January earnings release, investors might be questioning why management did not update guidance then.  Most likely, management had seen its stock price sell off from $85.82 in late November to $78.12 the day before the earnings event, and wanted a strong earnings report to stem the selloff.  So good news then, and then some bad news yesterday after the stock had rallied for 6 straight days.

Granted, P&G gets about 65% of its sales from outside the U.S., a larger proportion than most multinationals. So the currency impacts are a big deal.  But this reduced guidance is also evidence of the double standard for corporate disclosures.  If the currencies are appreciating, thus giving a boost to earnings, management will rarely mention the currency tailwind (and almost never raise guidance).  Rather, the company will report better-than-expected earnings, and management will be happy to take the credit for it when it happens, currency impact or not.

In any case, what are some of the other large U.S. multinationals that get over half of their revenues from outside the U.S.? Here’s a short list of those stocks in the S&P top 50:


Many of these names were hit harder than usual given their defensive nature on the most recent selloff.  International exposure is a big part of it.  For example, PM is trading near 2 year lows as a result of the emerging market turmoil.

PG’s announcement is likely not a one-off, so we’ll be on the lookout as the market starts to price in some potential disappointment among the multinationals listed above.  CSCO’s earnings announcement tonight might offer some more evidence on this trend as well.