Review & Outlook

Our take on the investing, financial, & economic themes of the day

Proctor & Gamble’s (Temporary) Currency Headwinds

26 April, 2014 by Matthew O'Brien, Ph.D. in Commentary

In Proctor & Gamble’s recent quarterly earnings report, the company announced a two percent growth in profits.  Profit growth would have been much less tepid if it weren’t for the effects of foreign exchange.  In 2013 P&G’s U.S. sales amounted to $30.3 billion, while international sales were $53.9 billion.  All those international sales need to be translated back into dollars before earnings are calculated, and minus the fluctuations of foreign currencies against the dollar, P&G’s profits grew 17% last quarter–a big difference from the tepid two percent once the dollar was factored in.


An article in Bloomberg Businessweek notes that it has been a bad time for P&G to expand abroad.  Over the long haul, however, abroad is where the growth is, and in particular, in emerging markets.  Emerging market currencies were particularly hard hit over the past six months, as the Federal Reserve tapered its quantitative easing program, encouraging some of the “hot money” it has pumped into financial markets to come home in search of rising yields.  Political turmoil in Argentina, Turkey, and especially Ukraine and Russia, have added to the mix.

Part of the attraction of investing in emerging markets–in this case, investing through a U.S. multinational like P&G, which is often a good way to do it–is investing in a local currency.  As a developing country’s population grows it supports growing businesses, and in turn, a strengthening currency.  So while right now the foreign currency exposure of P&G is hurting its profits, over the long run that exposure is likely to give it an extra boost.