By Chuck Mikolajczak and Sinead Carew
NEW YORK (Reuters) - A slew of U.S. multinational companies from DuPont (N:DD) to Microsoft Corp (O:MSFT) showed that a strong U.S. dollar is hammering their earnings, with several blue chip exporters predicting the situation will get worse if the greenback holds its strength.
All told, the resurgent U.S. currency could shave up to $12 billion off U.S. companies' fourth-quarter 2014 revenue alone, according to currency expert Wolfgang Koester, the chief executive of FireApps, a data analytics company in Phoenix, Arizona that examines quarterly reports for currency related losses.
The pain is hitting multiple sectors including industrial companies such as DuPont (N:DD) and 3M Co (N:MMM), technology companies like Microsoft Corp (O:MSFT) and Apple Inc (O:AAPL) (set to report its earnings after Tuesday's market close), airlines such as American Airlines Group Inc (O:AAL) and healthcare companies including Bristol-Myers Squibb Co (N:BMY) and Pfizer Inc (N:PFE) - all companies that garner a large portion of their sales from outside the United States.
"This is a slow motion crash," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh. It could take a couple of quarters for currency conversion losses to show up, she said.
After hitting a 6-1/2 month low in May, the dollar (DXY) has surged nearly 20 percent against a basket of major currencies, making their overseas sales denominated in other currencies less valuable in dollar terms.
The stronger dollar can also make their products more expensive for consumers in other currencies and thus cut demand.
The Dow Jones industrial average (DJI), composed of large and well known companies excluding those in transportation and utilities, was hit especially hard by the disappointing results. Of the seven companies in the index that posted results following Monday's close, 6 were in negative territory, with only United Technologies showing a slight gain. The six decliners accounted for nearly 40 percent of the Dow's fall on Tuesday.
"You have companies who don't normally complain about (the dollar) who are starting to harp on it and it does make sense from an economic perspective that this would be a drag," said James Liu, global market strategist at JPMorgan Funds in Chicago. "It's really the pace that matters - not just whether it is strengthening or weakening."
HEDGING HELP LIMITED WITH SHARP MOVES
The choice for multinationals is stark. They can keep customers loyal by maintaining overseas prices and take a revenue hit from a tough currency conversion to dollars, or raise prices and risk the loss of customers to cheaper local competitors in regions like Europe.
While many companies successfully use currency hedging to at least partly protect themselves against foreign exchange related losses, the speed and extent of recent fluctuations have made it more difficult to hedge accurately. This has also hurt Wall Street analysts' ability to estimate losses.
One of the worst hit companies so far appears to be chemicals giant E I Du Pont de Nemours and Co, which derives roughly 60 percent of its revenue from overseas sales. The strong dollar cut 7 cents per share off DuPont's fourth quarter earnings and it warned that 2015 earnings per share could be cut by 60 cents based on last week's currency rates.
Bristol-Myers said it expects foreign exchange rates to cut its 2015 revenue by $800 million and 12 to 14 cents in terms of earnings per share.
These impacts look even more abysmal when compared with the 1 cent per share currency impact target that multinationals set for their foreign exchange managers, according to FireApps.
American icon Apple Inc (O:AAPL) is also at risk as it brings in roughly 62 percent of its revenue from overseas and had to temporarily close its online store in Russia in December due to dramatic currency fluctuations.
Currency could shave as much as $3 billion off Apple's 2015 revenue even if its aggressive hedging strategy may succeed in halving the impact, according to technology analyst Shannon Cross at Cross Research in Millburn New Jersey.
Apple said in October that currency hedges only help for so long as contracts tend to span time frames as short as three months to as long as 12 months.
Shares in Microsoft, which gets nearly three-quarters of its revenue from overseas, fell 10.4 percent on Tuesday after it said it was hurt by the stronger dollar but gave no specifics.
Other notables names citing currency headwinds so far in the earnings season include Johnson & Johnson (N:JNJ) and IBM (N:IBM).
Dollar strength already shaved at least $4 billion off U.S. corporate revenue in the third quarter, according to FireApps but it noted that losses may actually be a lot higher than this as many firms with currency losses did not previously disclose the amount.