GOLDMAN: The Dollar Is Telling Us A Lot Of Companies Will Report Worse-Than Expected Revenues

Q2 earnings season is underway.

One metric that everyone will follow closely is revenue, which tells us everything we need to know about the state of demand for stuff.

“A closer look at the revenues estimates shows that analysts are expecting relatively anemic growth of 2.3% this year and 4.3% next year,” noted Ed Yardeni, a veteran stock market strategist.

So what’s behind these weak numbers?

“During the past year, weak foreign demand and FX exposure hurt sales results,” said Goldman Sachs’ David Kostin. “Weak macro data in the first part of 2Q and dollar strengthening increase the likelihood of sales misses.”

Kostin and his team ran the numbers, and it appears that revenue surprises are correlated with the strength of the U.S. dollar.  In other words, when the dollar strengthens, companies will announce revenue results below analysts’ expectations.

From Kostin:

Over the past year, weak foreign demand and FX exposure harmed sales results. In three of the past four quarters, the percentage of firms exceeding revenue estimates by one standard deviation or more was half of the 10-year average, while the percentage of firms missing sales estimates was 50%-100% higher than average.

Revenue beats and misses are correlated to dollar strengthening. The percentage of misses in recent quarters was disproportionate to currency movements, indicating weaker demand also influenced sales results.

We expect another disappointing quarter for revenues. Weak macro data in the first part of 2Q and dollar strengthening increases the likelihood of sales misses. We expect the percentage of companies missing top-line estimates will be above the 10-year average of 20%, but less severe in magnitude than recent quarters.

revenue dollar

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