Article / 16 December 2016 at 11:39 GMT

Earnings Watch: Strong USD still bothering US companies – #SaxoStrats

Head of Equity Strategy / Saxo Bank
Denmark
  • Stronger USD continues to weigh on US companies' sales growth
  • 23 companies scheduled to report earnings next week
  • Sports apparel maker Nike reports Q2 results on Tuesday
  • Strong USD began affecting Nike results in Q1-15, knocking its growth below Adidas'
  • .Nike's stock is overvalued given the USD headwind
Nike headquarters
 The strong dollar has buffeted the Beaverton, Oregon-based sports apparel 
maker since the first quarter of 2015. Photo: courtesy of Nike, Inc


By Peter Garnry

Twenty-three companies will report earnings next week, with the most important factor again being the stronger US dollar as it continues to hamper growth in the short term for American companies.

Strong USD hurting Nike's growth

Business software maker Oracle missed sales estimates last night, blaming the strong USD. Investors should get used to this as the latest divergence in monetary policy between the Fed and the rest of the world will keep driving the USD higher, weighing on US companies' sales growth.

For sport shoes and apparel maker Nike the stronger USD has also been a tough headwind. Annual sales growth from 2012-14 was 10.3%, while negative for Adidas at -0.5%. But since the stronger USD affected earnings in the first quarter of 2015, growth rates have flipped between the two companies. Adidas has in the last seven quarterly earnings releases had 15.6% annual growth while Nike has slowed to 6.1% while also experiencing margin pressure.

North America represents 46% of Nike's revenue and has historically been its stronghold, but Adidas has been aggressively pushing their new US strategy lately with a new concept store in New York. Competition is generally increasing in the North American sports apparel industry, and we are worried that Nike's valuation on EV/EBITDA (~16.6) is too high given the USD headwind and increasing competition. The valution reflects a 60% premium to the historical average.

Nike reports second-quarter results on Tuesday at 2115 GMT (after the market close), with analysts expecting EPS of $0.43, down 4% year-on-year. The average Q2 EPS estimate is down 17% the past six months. Revenue is seen up 5% year-on-year at $8.1 billion.

Other important earnings releases next week are Lennar (Mon), Carnival (Tue), FedEx (Tue) and Accenture (Wed).


– Edited by John Acher

 

Peter Garnry is head of equity strategy at Saxo Bank

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