The U.S. dollar has been growing increasingly strong in recent months, thanks to a growing national economy and falling oil prices.
But this has strained manufacturers who are looking to sell their suddenly more costly products overseas or compete with foreign companies on bids.
The strong dollar has been making national headlines and affecting companies like Ferro Corp. in Mayfield Heights, Ohio, Chart Industries Inc. in Garfield Heights, Ohio, and A. Schulman Inc. in Fairlawn, Ohio —all of which have reported that the foreign currency exchange rate has affected their outlooks for 2015.
Ferro in February set its earnings per share guidance for fiscal year 2015 at $0.85 to $0.90, noting an expected negative impact of $0.12 to $0.14 from foreign currency rates.
Compounder A. Schulman reduced its full-year guidance in March to $2.50 to $2.55 per diluted share from $2.60 to $2.65, “reflecting the impact of the continuing steep decline of the euro and other foreign currencies,” according to a news release.
And Mayfield Heights-based Hyster-Yale Material Handling Inc. expects its European operating profit to decline in 2015 in part because of negative foreign currency movements.
“Currency was also one of the main drivers of our reduced gross profit, along with pricing pressure and unfavorable manufacturing variances,” investor relations consultant Christina Kmetko said in the company's fourth quarter conference call transcript.
Trying to make cents
A number of factors have gone into the strengthening of the dollar in recent months and, despite the troubles this can cause manufacturers, it's not necessarily a negative development. The stronger dollar is a reflection of a strong U.S. economy, said Pittsburgh-based PNC Financial Services Group Inc. economist Mekael Teshome.
Monetary policy also has played a role in the strengthening dollar, said Jeff Korzenik, chief investment strategist at Fifth Third Bank in Chicago. The U.S. is at a different part of its business cycle than many of its foreign competitors, as the Federal Reserve is looking to raise interest rates while many foreign central banks are planning to lower interest rates or taking other easing measures, he said.
And the oil price collapse has strengthened the dollar against all currencies, Korzenik said. When the cost of what the U.S. imports — like oil — goes down, the trade deficit improves.
There have been sustained periods of a strong U.S. dollar in recent history, notably the early '80s and late '90s, Korzenik said, but the challenge for businesses this time has been the pace of the change. The euro and other currencies have been in a “free fall” since last summer after more than five years of relative stability. When the appreciation of the dollar is more gradual, companies can adjust by outsourcing some of their inputs, such as component parts, he said.
There have been a number of headwinds hitting manufacturers in recent months, from the treacherous weather to a slowdown at the West Coast ports to the intertwined issues of the strong dollar and soft global demand, said Chad Moutray, the chief economist for the National Association of Manufacturers in D.C.
“That really hurts our ability to grow exports,” Moutray said.
Even companies that don't do a lot of direct exporting can suffer from the trickle-down effect. If a large company sees a drop in exports, its suppliers will be affected, said Bill Gaskin, president of the Precision Metalforming Association in Independence.
And, for those that are selling overseas when the dollar is strong, the difference in currencies can make U.S. manufacturers less competitive, Gaskin said. That effect can last for years, depending on contract lengths.