Dollar Appreciation Impacts IBM’s Growth in 2Q15


Nov. 20 2020, Updated 5:21 p.m. ET

Strengthened US dollar subdues IBM’s revenue growth

In the first part of this series, we noted that IBM (IBM) continued to post a decline in its revenues in fiscal 2Q15. The company pointed to the strengthening US dollar (UUP) for the decline in its revenues, which fell by 13.5% in fiscal 2Q15. On a constant currency basis, revenue only declined by 1%.

The impact of the dollar’s appreciation on IBM’s earnings can be seen in 2Q15, when nine out of the 13 points of the revenue decline was due to a stronger dollar, as the below chart shows.

IBM estimated that revenues in fiscal 2Q15 were impacted by $2.1 billion, as the presentation above shows. This occurred due to the appreciation of the US dollar in comparison to major currencies like the euro and the Japanese (EWJ) yen.

The US dollar has been rising steadily since 2014, backed by the slump in oil prices and the Greek debt crisis. The rise of the dollar causes US-produced goods to become costlier, which affects exporters and drags down revenues.

The graph below shows how currency headwinds have been dragging down revenues and corporate earnings. Pfizer (PFE) and Proctor & Gamble (PG) have also reported a decline in revenues by 7% and 9.2%, respectively, due to currency headwinds.

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Currency headwinds are expected to continue in 3Q15

Unfortunately, currency fluctuations are expected to pose problems in 3Q15 as well. In the first chart in this article, the currency numbers show that the 3Q15 results are likely to experience an impact equal to the 2Q15 results.

4Q15 is likely to see a reduction in the currency fluctuations. Improvements in the US economy have more investors convinced that the Federal Reserve (or Fed) will begin lifting interest rates later this year. Such expectations will likely continue to support the dollar.


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