Forex Headwinds: Navigating Their Impact on Revenue Guidance

Current Forex Trends and Financial Impact

Current Forex trends, particularly the strengthening of the U.S. dollar, are negatively impacting revenue growth for major global companies. Microsoft, Coca-Cola, and Amazon have all reported unfavorable effects on their revenues due to foreign exchange rate fluctuations, with expectations of continued adverse impacts throughout 2024.

"In addition to the long-term trends and their financial effect on our business discussed in "Trends in Our Business and Financial Effect" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, fluctuations in our revenues have been and may continue to be affected by a combination of factors, including:" --- (GOOG, sec filing, 2024/Q1)

"More broadly, there could be additional negative impacts to our net sales, earnings and cash flows should the situation escalate beyond its current scope, including, among other potential impacts, economic recessions in certain neighboring countries or globally due to inflationary pressures and supply chain cost increases or the geographic proximity of the war relative to the rest of Europe." --- (PG, sec filing, 2024/Q3)

"First, FX. Based on current rates, which reflect the recent strengthening of the U.S. dollar, we now expect FX to decrease total revenue and segment level revenue growth by less than 1 point." --- (MSFT, earning call, 2024/Q3)

"Based on current spot rates and our hedging coverage in place, we expect foreign currency exchange rate fluctuations will have an unfavorable impact on our full year 2024 net operating revenues." --- (KO, sec filing, 2024/Q1)

"Second, while I typically talk about growth rates, excluding the impact of year-over-year changes in foreign exchange, we did see an unfavorable impact from global currencies weakening against the US dollar, more than we had planned in Q1." --- (AMZN, earning call, 2024/Q1)

Sector-Specific Impacts of Forex Headwinds

Forex headwinds are impacting various sectors differently. Coca-Cola anticipates an 8% currency headwind on EPS growth and a 4-5% headwind on net revenues. Apple expects a 2.5% forex headwind on revenue growth, while Procter & Gamble projects a $600 million after-tax impact for the fiscal year.

"Comparable EPS (non-GAAP) percentage growth is expected to include an approximate 8% currency headwind based on the current rates and including the impact of hedged positions, in addition to a 1% to 2% headwind from acquisitions, divestitures and structural changes." --- (KO, press release, 2024/07/23)

"computing opportunity in enterprise. Taking a quick step back, when we look at our performance during the first-half of our fiscal year, total company revenue was roughly flat to the prior year in spite of having one less week of sales during the period and some foreign exchange headwinds." --- (AAPL, earning call, 2024/Q2)

"We now expect foreign exchange to be a headwind of approximately $600 million after tax for the fiscal year." --- (PG, earning call, 2024/Q3)

"— Updated For comparable net revenues (non-GAAP), the company expects a 4% to 5% currency headwind based on the current rates and including the impact of hedged positions." --- (KO, press release, 2024/04/30)

"We expect our June quarter total company revenue to grow low-single-digits year-over-year in spite of a foreign exchange headwind of about 2.5 percentage points." --- (AAPL, earning call, 2024/Q2)

Future Forex Trends and Revenue Guidance

Future forex trends, such as the strengthening U.S. dollar against the Japanese yen, are negatively impacting APAC revenue growth (GOOG). Economic conditions and policy actions are also contributing to interest rate changes and market volatility, potentially increasing future borrowing costs (AMZN). Companies are using constant currency metrics to manage and evaluate these impacts (GOOG).

"APAC revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Japanese yen." --- (GOOG, sec filing, 2024/Q1)

"In addition, economic conditions and actions by policymaking bodies are contributing to changing interest rates and significant capital market volatility, which, along with any increases in our borrowing levels, could increase our future borrowing costs." --- (AMZN, sec filing, 2024/Q1)

"We use non-GAAP constant currency revenues ("constant currency revenues") and non-GAAP percentage change in constant currency revenues ("percentage change in constant currency revenues") for financial and operational decision-making and as a means to evaluate period-to-period comparisons." --- (GOOG, sec filing, 2024/Q2)