Weak euro could boost European companies as US exports feel pressure

By Andrew MCDOUGALL

- Last updated on GMT

Weak euro could boost European companies as US exports feel pressure

Related tags Euro European union

A weaker euro could see European companies’ products sell for cheaper overseas and lift the value of dollar-based sales while stifling US rivals.

Most in Europe will have noticed the euro sliding towards parity with the dollar in recent months and while this presents a challenge to firms in Europe, it may also provide a boost to them.

One such company that sees there could be an eventual benefit, perhaps not straight away, is cosmetics maker L’Oréal, with company CEO Jean-Paul Agon giving his views in a call to investors.

“We have been handicapped by the strength of the euro, but now it seems that the wind is turning and we intend to make the most of this very positive currency effect that will help us deliver a nice increase of our sales and our profits in 2015,”​ he says.

US export pressure

Having seen positives in the situation thanks to lower borrowing costs and stronger demand from euro zone-based customers, US companies may now actually see their progress stifled, as some have even cut their earnings guidance.

These companies have said they are now looking to cut costs, increase the portion of inputs they source from inside the euro zone and adopt new pricing policies, to try and maintain market share and margins.

“US companies exporting goods to Europe could face margin pressure from price adjustments or promotions in Europe,”​ James Targett, analyst at Berenberg, says to Reuters.

“You have to think about where your revenues are, where your manufacturing is and where you’re buying your raw materials from,” ​he adds.

Hard-hit US players

For US cosmetic and personal care players doing business overseas, once revenues in local currencies are translated into the US dollar, the results have been making the books look bare.

Estée Lauder 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%.

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.

“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."

Meanwhile for France-based L’Oréal, which still has to contend with a slow pace in its mainstay Western European market and has also been battling the negative impact of currency translations, it is being slightly cushioned by the euro.

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