Phil Serafino Paris
EUROPEAN companies from Sanofi to Deutsche Telekom stand to benefit this year as the euro’s slump to a nine-year low against the dollar bolsters profit growth.
While the slide reflects the weaker economic outlook in the region relative to the US, it also provides a windfall for companies that sell in the US. Goods from the region now cost less in dollars, while products imported from the US are more costly. US revenue for European firms also is worth more when converted to euros.
The euro’s drop “is good news because it helps exports from Europe to other markets, or at least prevents imports to Europe”, Carlos Ghosn, the chief executive of French car maker Renault, said on Wednesday in Rio de Janeiro.
The currency move is adding fuel to a turnaround in corporate profits that analysts are forecasting. Earnings for the Euro Stoxx 50 index – a benchmark of 50 big companies in the euro region – dropped 3.8 percent last year. Analysts predict an increase in European earnings this year.
Sanofi, France’s biggest drug maker, gets almost a third of its revenue from the US. Every 1 percent drop in the euro versus the dollar added 0.5 percent to earnings per share, the Paris-based company said in October.
T-Mobile US, the fourth-largest US cellphone carrier, accounts for about 29 percent of sales for its parent company, Deutsche Telekom.
The euro fell to as low as $1.1802 (R13.8225) on Wednesday, its weakest level since January 2006. At its 2014 peak in March, a euro bought $1.3934. The drop accelerated at the end of 2014 and earlier this month on expectations the Federal Reserve will raise US interest rates and the European Central Bank will begin large-scale government bond purchases. – Bloomberg