Coca-Cola and Pepsi Face obstacle as US dollar Surges
The biggest problem that Coca-Cola and Pepsi face these days is the increasing US dollar as both the companies have significant percentage of their revenue from overseas markets. According to experts, the two giants depend on overseas customers for nearly half of their revenue.
Jack Ablin, chief investment officer at BMO Private Bank said that the rise in valuation of US dollar has really hit earnings of many companies. Last week, the both have reported a fall in sales. It has been informed that quarterly results of Global corporations from Avon Products to Yum Brands would have been impressive if the dollar had remained at its earlier level.
Against major currencies, the dollar has increased 17% over the last year. Analysts are reducing their forecasts for corporate profits because of the increasing dollar and plunging oil prices. But still, economists are expecting the US economy to improve.
In October, it was estimated by analysts that the companies in the Standard & Poor's 500 index will post profit growth of 11% for the final three months of 2014. According to S&P Capital IQ, only some companies are left to report and corporate profits are on track to fulfill the expectations.
According to experts, this year's forecasts have taken a major hit. For instance, in December it was expected that profits would climb 9% in the first quarter. At present, it is expected that they will shrink over 2% over that same period.
About 50% of all revenue for companies in the S&P 500 comes from outside the US, and mostly from Europe and Asia. At the time, dollar increases against the euro, it affects in two ways, and cost of American-made goods gets increased for customers in Europe. The goods that move off foreign shelves turn into less dollars.
"This is the most significant fiscal year currency impact we have ever incurred", said Jon Moeller, P&G's chief financial officer.
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