Strong Dollar Has Companies Counting the CostAnd Opportunities - WSJ 12/7/16, 1:04 PM

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BUSINESS

Strong Dollar Has Companies

Counting the CostAnd Opportunities
U.S. exporters brace for tough times; in Europe, looking for ways to increase exposure

The U.S. currency has strengthened 4.3% since the U.S. presidential election, recently approaching a 14-year high. PHOTO:
GARY CAMERON/REUTERS

By THEO FRANCIS and ERIC SYLVERS

Dec. 7, 2016 5:30 a.m. ET

The dollar is on a tear, and that is shaping corporate strategy on both sides of the
Atlantic.

U.S. exporters are bracing for tough times. Their goods overseas are suddenly more
expensive in many places, and foreign earnings are worth less when translated back into
dollars.

For European exporters, by contrast, the dollars strength has created opportunity. The
U.S. currency has strengthened 4.3% since the Nov. 8 U.S. presidential election, recently
approaching a 14-year high, giving the companies pricing power over U.S. competitors.

Currency moves tend to be fickle, making bold steps to counter them all the riskier. This
time, however, fundamentals seem stacked in favor of continued dollar strength
emboldening executives.

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Strong Dollar Has Companies Counting the CostAnd Opportunities - WSJ 12/7/16, 1:04 PM

We are going towards parity, the question is when exactly it will arrive, said Bob
Kunze-Concewitz, chief executive of Italian drinks maker Davide Campari-Milano SpA.

The euro recently was trading at $1.0718. The British pound, meanwhile, has fallen
sharply against the dollar following the U.K.s vote in June to leave the European Union.

As a general rule of thumb, every 10% rise in the value of the dollar translates into 3%
more operating profit at Campari. In an interview, Mr. Kunze-Concewitz said he is
scouting for acquisitions that could add to that exposure.

Earlier this year, Campari bought the maker of orange liqueur Grand Marniera French
firm that counts more than half of its sales in the U.S.

Most economists are predicting the Fed will raise key interest rates in mid-December,
and consensus forecasts call for two more increases next year. The Fed could turn even
more hawkish if President-elect Donald Trumps promises of fiscal stimulus trigger
inflation. Rate increases tend to boost a currency, making investment denominated in it
generally more attractive because of the prospect of higher interest.

Another support for the

greenback: Republicans plan
tax incentives designed to
encourage U.S. companies to
bring foreign profits back
home. If companies reinvest a
significant share of those
dollars, the U.S. economy
could strengthen, too,
potentially adding to the
upward pressure on interest
rates.

That is all now a problem for

many U.S. companies that have extensive exposure to foreign markets. Nearly 60% of
sales by technology companies in the S&P 500 are outside the U.S., according to FactSet
data. Roughly half of sales for basic-materials companies and more than a third for
energy and industrial firms are overseas.

For some companies, the exposure is considerably higher. Molson Coors Brewing Co.,
Qualcomm Inc., Texas Instruments Inc., Priceline Group Inc., Intel Corp. and Yum
Brands Inc. all reported receiving three-quarters or more of their sales outside the U.S.,
according to FactSet.

Foreign-sales exposure for most U.S. companies often is nuanced. Oil producers, aircraft
makers and heavy-equipment manufacturers, for example, often sell their products in
dollars around the world. And consumer-products makers can make their offerings
close to their end-markets, reducing some currency impact.

Still, many U.S. firms are taking big hits, and considering ways to mitigate the
headwinds. Consumer-product maker Procter & Gamble Co., for instance, said foreign
exchange globally took a seven-percentage-point bite out of an adjusted measure of
earnings in the quarter that ended Sept. 30. Cisco Systems Inc. warned in a November
call that currency moves have led some customers outside the U.S. to stop capital
spending until they have more exchange-rate clarity.

Procter & Gamble executives warned last month that there is no easy fix for the dollars
continuing strength, and that strategies such as cost-cutting, repricing products and
changing the product mix all would take time.

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Strong Dollar Has Companies Counting the CostAnd Opportunities - WSJ 12/7/16, 1:04 PM

They arent things that well likely to be able to cover in the quarter, Chief Financial
Officer Jon Moeller said. We do not plan to cut investments as a way to manage through
these events, so well have to see as things settle down where we net out for the year.

Hewlett Packard Enterprise Co. said that the euros slide to about $1.06, from about
$1.10, as recently as early November, dented its results, though the company has some
hedging programs in place and has redoubled efforts to keep its costs low.

Given our global footprint, that does put some pressure on the operations, CFO Tim
Stonesifer told investors last month. Were keeping a close eye on the currencies. And
at the same time, were also implementing operational actions to help mitigate any
pressure.

The dollar strength has weighed particularly on the euro. Across the Atlantic, the
European Central Bank is still a long way from considering its own rate rise. Later this
week, the bank is expected to do pretty much the opposite by extending bond buying
aimed at keeping rates low.

That has been a boon for European exporters to the U.S. Fiat Chrysler Automobiles NV
generates almost two-thirds of its sales in the U.S., but keeps its accounts in euros.

Lets hope it lasts as long as possible, Chief Executive Sergio Marchionne told
reporters recently.

Write to Theo Francis at theo.francis@wsj.com and Eric Sylvers at

eric.sylvers@wsj.com

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