Strong dollar weighs on sales of Charlotte-area companies

The phenomenon that is making travel abroad cheap for U.S. tourists is proving to be a headache for some corporations who sell goods overseas, including some major Charlotte-area manufacturers.

When the U.S. dollar strengthens against other currencies, as it has for about nine months, it makes American-made goods pricier abroad and makes sales in other currencies worth fewer dollars.

As corporations across the country, from fashion retailers to manufacturers, report first-quarter earnings, many are saying the strong dollar hammered their sales.

“When (companies) try to export or sell products abroad, they cost more, so market share goes down. This is what hurts a lot of companies,” said Howard Silverblatt, a senior index analyst for S&P Indices.

Of the S&P 500 companies he’s examined that have reported first-quarter earnings so far, about two-thirds said sales were hit by the foreign exchange rate. More than 46 percent of S&P 500 sales take place abroad, Silverblatt said.

In Charlotte, steelmaker Nucor’s sales were hit as cheap steel imports flooded the market. Sealed Air’s sales in Europe and Russia were hurt as those areas’ currencies fell against the dollar. SPX Corp. blamed half of its first-quarter sales drop on a currency drag. United Technologies Corp. said its sales slump was caused by the dollar’s strength and partially offset by growth in its aerospace segment.

To protect themselves, many companies hedge against currency fluctuations, though such exchange trends don’t persist long, Silverblatt said. Unless they’re facing other big balance sheet problems, most companies should be able to weather the short-term pain, he added.

Mark Vitner, a Charlotte-based economist at Wells Fargo, said the dollar’s appreciation stings in the short term, but it could force companies to become more efficient in other ways, such as improving turnaround times.

“It’s sort of like a football game when you play a really good opponent and it brings out the best in you. You may get run over and flattened, and if you stink, you stink,” Vitner said. “But if you’re a competitive team and you play a really good team, you look forward to that. You don’t run and hide.”

The stronger dollar already has had broader economic implications. The U.S. Commerce Department said Tuesday that the trade deficit, the difference between exports and imports, rose to its widest point in more than six years as exports, affected by a rise in the value of the U.S. dollar, slumped and imports surged.

“The trade data was ugly,” Mesirow Financial chief economist Diane Swonk wrote in a blog post Tuesday. “Real GDP could easily be revised to show a contraction in the first quarter.”

Here are some examples of local corporations who pointed to currency as reason for a slump in first quarter revenue. All but Nucor either couldn’t be reached for comment or declined to comment.

Nucor

The Charlotte-based steelmaker, the largest in the U.S., said last month that sales fell about 14 percent. That drove down earnings, which fell 39 percent from one year ago, as an influx in steel imports pushed down prices.

The stronger dollar has allowed foreign competitors with weaker currencies to pay less to produce steel. They’ve been able to undercut steelmakers in the U.S. as demand wanes in China, Russia and Brazil, resulting in a big swell in the amount of imported steel in the U.S.

Last month, Nucor CEO John Ferriola joined other leading U.S. steelmakers in warning Congress about the dangers of foreign steel flooding domestic markets, warning that steel mills will continue to close and that more jobs will be lost unless the federal government works to stop foreign trade practices that he says undercut domestic steel manufacturers.

Nucor communications manager Katherine Miller told the Observer in an email that despite difficult market conditions, Nucor hasn’t laid off any workers. Its workers, however, are currently being paid less because pay is linked to steel production, which has been reduced.

Sealed Air Corp.

The manufacturer – which recently said it’s moving its headquarters to Charlotte from New Jersey, bringing with it nearly 1,300 jobs by 2016 – said last month that quarterly sales fell 4.4 percent from the same period in 2014.

The Bubble Wrap maker said on a constant-dollar basis, sales rose across all divisions and regions, but currency had a $146 million drag on sales, mostly because of declines in the euro and Russian ruble.

SPX Corp.

The Charlotte-based manufacturer said in a recent earnings report that first quarter sales were down 12 percent from the same period in 2014, and that about half of the drop was linked to the appreciated dollar.

SPX – which makes a variety of machinery, including equipment for the food and beverage industry and power transformers for utility companies – said the slump in sales weighed on its earnings. But the decline was partially offset by strong performance in its food and beverage business, the company said.

United Technologies Corp.

UTC, which employs about 300 at its Aerospace Systems headquarters in Charlotte and about 200 in Monroe, said sales fell to $14.5 billion, dragged down by the negative impact of a stronger dollar but partially offset by positive organic growth in its aerospace unit, which constitutes over half of its business.

In an earnings call last month, President and CEO Greg Hayes said the company is “not really disadvantaged by currency,” adding that UTC manufactures in Europe and China for those respective markets, and that more than half its business is aerospace, which is U.S. dollar-dominated.

This story was originally published May 7, 2015 at 6:36 PM with the headline "Strong dollar weighs on sales of Charlotte-area companies."