Companies are always complaining about the strong dollar, but there's a solution
It would seem to me that if you are selling stuff abroad, in this low inflation environment, your company should know the cost of production for those goods and such. and other things that go into making a profit on selling your goods (and services). I gotta think Coke and other multi-nationals have a handle on those numbers and can also anticipate some level of profitability on a quarter on quarter basis.
“Riddle me this, Batman?”
Of course, that profit can be effected by currency fluctuations. Honeywell said recently, that for every cent change in the EUR, their earnings are effected by $45 million (see POST HERE). That is exposure.
However, if every cent lower in the EURUSD costs $45 million, a cent rise should benefit by $45 million too.
So why doesn’t corporate treasurers do something about their profit exposure. Why when the EURUSD was up at 1.39, or 1.35 or 1.32, did not the corporate treasurer hedge “some” profit projections? Do they not realize that while the EURUSD is going higher, their profits (not profit margins on the product sold) are being boosted by currency gains above and beyond what they should be making on selling a can of Coke or some jet engine part?
The answer will probably be, “they don’t want to be currency traders”, and maybe there are times, or currencies, that you don’t want to be too active. However, if you see your profits on selling a can of Coke go higher per unit sold because the EURUSD is at 1.3900, why not lock in profit when the price breaks the 100 or 200 day MA. Why not focus on your product margins vs. focusing on product margins and currency gains?
Hindsight is 20-20 but remember, these multinationals are hedging profit. They can cap some profit by hedging and should be happy. Make it known too, like Honeywell did (they should have done it earlier). If instead they choose to just let the EURUSD go from 1.39 to 1.25 and do nothing, don’t whine about it when earnings are lower. Fix the problem.
Am I being too harsh?
