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Foreign Currency Exchange Rate Risk Affects Q1 2018 Business Performance

By Megan Doyle

In the words of foreign currency exchange rate news source Daily Forex, the first quarter of 2018 "will be remembered as a time when a strongly rising, mature and tech-led bull market in stocks hit some wild volatility."1 U.S.-based and foreign companies reporting quarterly earnings dealt with a U.S. dollar that was down an average of 1.85 percent for the quarter, while the pound was up 4.19 percent against the dollar and the euro was up 2.59 percent.2

First quarter results matched up with Saxo Group's Q1 2018 Quarterly Outlook, which predicted a "weaker U.S. dollar into year-end," and a continuing a strong euro. The report also predicted a "far more volatile and dynamic" year than impacted foreign currency exchange rates in 2017, and that has been the case thus far.3


With a weakened dollar and an increasingly volatile market, foreign currency exchange rates led to a mixed bag for businesses. Some saw positive effects, some negative, and some relatively neutral – possibly due to each individual organization's currency hedging strategies. Here are how some companies in selected industries were affected in the first quarter.


Automotive: Mixed Foreign Currency Exchange Rate Affects


German-based and export-driven automotive businesses like Daimler AG and Continental AG noted that the weaker dollar could "dampen growth going forward," even if overall sales exceed expectations.4 This came true in Q1 for BMW, which saw lower operating profit due to foreign currency exchange rates despite strong higher sales volumes and margins than anticipated.5 According to the company, "volatile conditions and unfavorable foreign exchange rate effects" – particularly a weaker dollar – lead to the overall operating profit drop.6


U.S.-based Ford Motor Co. also saw "solid" first quarter results, in line with its expected outlook, according to its first quarter earnings call. Ford's revenue was up 7 percent to $42 billion, driven in part by favorable foreign currency exchange rate effects.7 Despite the increase, the company's earnings before tax and interest saw $240 million worth of adverse FX impact. However, according to Ford's chief financial officer Bob Shanks, Ford was able to offset some of those negative effects through "higher net pricing."8


Technology: Mostly Positive FX Impact


In the technology industry, Apple, Microsoft, Google, and Facebook all saw positive impacts from foreign currency exchange rates. Apple's saw "robust" gross margins in spite of a weak dollar. According to senior vice president Luca Maestri, since two-thirds of the company is outside the U.S., "a weak dollar is positive for [Apple's] gross margins; a strong dollar, as it's been during the last four years, has been a headwind for the company."9 In the past, Apple has tried to maintain stability through a currency hedging program that allows it to hedge against either a weaker or stronger dollar, which has helped it "navigate a difficult foreign exchange environment for a number of years," says Maestri.10


Microsoft's results also reflected an overall positive FX impact: foreign currency exchange rates increased the company's revenue growth by one point more than expected.11 Microsoft's outlook for its next quarter expects foreign exchange to increase revenue by three points, assuming current foreign currency exchange rates remain stable.12


Google's first quarter 2018 earnings report showed revenue up 26 percent year-on-year to $31.1 billion – including a $1.3 billion positive impact from favorable foreign currency exchange rates. However, that $1.3 billion was reduced to $1.1 billion after factoring in Google's foreign currency hedging program.13 FX tailwinds added $536 million to Facebook's first quarter 2018 revenue.14


Pharmaceutical and Medical: Mixed FX Impact


As for the pharmaceutical and medical industry, both Johnson & Johnson and Pfizer experienced overall favorable foreign currency exchange rates. Johnson & Johnson's worldwide sales went up 8.4 percent to $20 billion for the first quarter, with 4.2 percent of that due to positive foreign currency exchange impacts. Similarly, favorable currency exchange rates benefitted the company's international sales results by 9 points.15 Pfizer saw a favorable foreign exchange impact of $430 million in revenue. However, FX had a negative impact on the company as well, increasing adjusted cost of sales, SI&A (selling, informational, and administrative) expenses, and R&D expenses by $349 million, compared to a negative FX impact of $127 million in the prior quarter.16



Increasingly volatile markets – and foreign currency exchange rates – may be raising the potential risks and rewards of FX risk management for international businesses. Businesses with flexible currency hedging strategies, however, may be better equipped to prevent short-term FX losses.

Megan Doyle - The Author

The Author

Megan Doyle

Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.


1. “1st Quarter 2018 Review,” Daily Forex;
2. Ibid.
3. Q1 2018 Quarterly Outlook, Saxo Group;
4. “Forex headwinds take shine off record BMW deliveries in first quarter,” Reuters;
5. Ibid.
6. “Forex effects dampen strong BMW Q1 results,” Just-auto;
7. “Ford Motor Q1 2018 Results – Earnings Call Transcript,” Seeking Alpha;
8. Ibid.
9. “Apple Q2 2018 Results – Earnings Call Transcript,” Seeking Alpha;
10. Ibid.
11. “Microsoft Q3 2018 Results – Earnings Call Transcript,” Seeking Alpha;
12. Ibid.
13. “Alphabet’s CEO Pichai on Q1 2018 Results – Earnings Call Transcript,” Seeking Alpha;
14. First Quarter 2018 Results Conference Call, Facebook, Inc.;
15. “Johnson & Johnson Q1 2018 Results – Earnings Call Transcript,” Seeking Alpha;
16. “Pfizer Q1 2018 Results – Earnings Call Transcript,” Seeking Alpha;

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