Strengthening US dollar raises challenges for US-based multinational cosmetic players
Job creation has hit its highest rate in a decade as the US economy pulls out of stagnation, with this momentum contributing to the dollar gaining against many leading international currencies, particularly the Euro.
All this means cheaper imports into the US and the dollar going a lot further with respect to many areas of international trade, but for US cosmetic and personal care companies doing business overseas, once revenues in local currencies are translated into US dollar, the results have been making the books look bare.
Estée Lauder execs foresee currency challenges
Last Thursday Estée Lauder executives said that a combination of the currency headwinds and declining growth in the China market would likely mean that the company would post full year sales either somewhere between being flat and a decline of 1%.
For the company’s second quarter, ending 31st December 2014, it posted sales up 1% to $3.04bn. However, underlying growth was underpinned by currency translations, with like-for-like net sales registering an increase of 5%.
A similar story was told at Procter & Gamble, where the company reported net sales fell by 4% to $20.2bn, impacted by a 5% impact from negative currency translations.
P&G execs says currency head winds are major
“We have and will continue to offset as much currency impact as we can through pricing and productivity cost savings,” said P&G CFO Jon Moeller in a conference call.
"This is the most significant fiscal year currency impact we have ever incurred."
P&G is currently in a less strong position than Estée Lauder, due to weaker underlying sales, which means the impact of currency translations is likely to hit its business ever harder.
L’Oréal less impacted by currency translations
Meanwhile, the world’s biggest cosmetics player, France-based L’Oréal, is having to contend with a slow pace in its mainstay Western European market, and has also been battling the negative impact of currency translations, but is being slightly cushioned by the Euro.
It has not announced its results for the fourth quarter ending in December, but for its third quarter like-for-like sales rose by 2.3% to Euros 5.2bn, which translated into a reported rate of 1.9% when calculating the negative impact of currency translations.
