As per our prior warnings, sell side analysts have been like usual late to the plate with regards to currency adjustments for US companies.
For now, consensus estimates show that first-quarter earnings reports released by major US companies will be sluggish. Consensus earnings estimates for the 30 Dow Jones industrial average companies shows an average (median) gain of only 3.1 per cent on a year-over-year basis.
With 25% of S&P 500 earnings coming out of Europe, and 6% coming from Japan, we think that most sell side analysts are behind the curve on this. The negative impact on first quarter earnings by international companies due to strength in the US$ on a year-over-year basis will be mentioned frequently when first quarter reports are released during the next three weeks. The US$ Index averaged approximately 81.0 in the first quarter of 2013, up from approximately 79.0 in the first quarter last year. At the end of the quarter, the Index was at 83.14 versus 79.00 last year. However, the US$/Yen has fallen by -31.5% since September 2012, which is in line with our forecasts, and this will weigh significantly on EPS for Q1 and will continue to be a negative surprise for analysts throughout 2013, particularly, as we anticipate the US$/Yen to be at 1.12 by year end 2013.