Corporations grapple with foreign exchange headwinds

Yahoo Finance’s Ines Ferre joins the Live show to discuss foreign exchange headwinds and how corporations are grappling with market volatility.

Video transcript

RACHELLE AKUFFO: Coke keeping its fizz with investors on earnings, while Proctor & Gamble last week also staying positive despite reduced consumer spending. The trick lies in overseas selling. Here with how the dollar is affecting earnings, Yahoo Finance's Ines Ferre. Hey, Ines.

INES FERRE: Hey, Rachelle, That's right. P&G and Coca-Cola, they're both consumer-facing companies, which beat revenue and earnings expectations despite still seeing foreign-exchange headwinds. Now, why is the US dollar important when looking at multinationals? Because these companies sell abroad, as well as the US. So the products they sell outside the US are sold in local currencies. And if they are weaker than the dollar, then sales booked in non-US dollars are worth less.

So when we look at the dollar index, the DX-Y, for example, that's the US dollar against a basket of other currencies, it's still sitting at multiyear highs. So even though it has pulled back, we have seen a pullback this year, then, well, it's still at historical high levels. And in its earnings call last week, Procter & Gamble management said, we continue to expect more volatility in the macro and consumer environment, and expect sustained pressure in costs and foreign exchange as we move forward. When it comes to Coca-Cola, executives in their earnings call talked about some FX headwinds similar to Q1 throughout the year.

Now, meanwhile, Apple will be reporting next week. And earlier this year, the iPhone maker said, unfavorable foreign exchange rates were a challenge for the fourth quarter, and said that revenue actually increased when adjusted for currency fluctuations. So the strength in the US dollar has been repeatedly mentioned by other multinationals in the past like IBM, like Caterpillar. And for this year, FX analysts have been forecasting a weaker dollar, if the Fed stops raising rates. But then, a global recession could prompt a flight to safety, so that would support the greenback, therefore also impacting multinationals. Rachelle.