By Ellen Emmerentze Jervell in Frankfurt, Manuela Mesco in Milan and Jason Chow in Paris
The tumbling euro and easy-money policies are boosting optimism
in corporate Europe that the long-struggling region might finally
begin a recovery worthy of the name. But Europe's good fortune is a
headache for U.S. corporate competitors that face a squeeze on
overseas sales from the rising dollar.
"We're cashing in," said Massimo Vian, chief executive of
Italian eyewear giant Luxottica, whose biggest market is North
America. Fourth-quarter sales spiked 12% on the year in U.S.
dollars, whose strength means rising profits in euros. "If it
continues this way, we'll consider whether to lower prices or
increase the number of store openings or even increase
investments."
It remains unclear whether the weak euro, monetary stimulus and
cheap energy prices will be enough to lift Europe's common-currency
area out of its prolonged growth malaise. But business leaders,
economists and policy makers are convinced the tide is turning at
least a bit in Europe's favor.
Meanwhile American corporations with major foreign revenues are
finding it harder to compete in export markets, and some worry that
the euro's slide is far from over.
"Foreign exchange is now a substantial headwind for us," said
John Kritzmacher, CFO of John Wiley & Sons, a publishing
company specializing in academic books. With roughly half the
firm's revenues outside the U.S., "our results are adversely
impacted by a strengthening dollar, particularly with respect to
the euro and the British pound," he said in an earnings call
Tuesday.
Although the hit on third quarter earnings per share was
marginal, the dollar's continued rise since then could change the
company's outlook for the coming fiscal year, Mr. Kritzmacher
said.
A powerful force behind the euro's decline is the European
Central Bank's program, unveiled in January, of printing EUR1
trillion-plus of money to buy government bonds and other assets in
the hope of lifting the eurozone's inflation rate, which has turned
negative. The ECB measure has been driving down the euro's value by
making investors believe the region will have ultralow interest
rates for some time to come.
"The impact of the program and the ECB's previous monetary
policy measures is visible," ECB President Mario Draghi told a
conference in Frankfurt on Thursday.
Conversely, the dollar's swift ascent against the euro poses a
potential challenge for Federal Reserve officials, who have been
laying the groundwork for U.S. interest-rate increases later this
year as the U.S. economy improves.
A stronger dollar puts downward pressure on U.S. inflation,
making it harder to reach the Fed's 2% objective, which could give
Fed officials pause about raising rates in coming months. Fed
Chairwoman Janet Yellen told lawmakers in February that the central
bank will move once officials are "reasonably confident" that U.S.
inflation is on course for 2%, after tracking below it for nearly
three years.
In Europe, global export powerhouse Germany was doing better
than most of its neighbors already, but the weak euro is expected
to deliver another boost that economists hope will spill over into
higher business investment and consumer spending.
"German consumer sentiment is more positive than in years," said
Oliver Bartels, spokesman for Bremen-based beer giant Brauerei
Becks & Co. "We are pushing out more premium and high-price
products into the market, as these are being well received at the
moment," he said.
But the fillip is being welcomed even more in France and Italy,
the eurozone's second and third biggest economies, which have been
struggling to grow at all.
France's large aerospace sector prices many of its products in
dollars and is anticipating higher profits. "We get a significant
margin increase" from the recent currency swing, said Eric Rumeau,
chief executive of Mapaero, a company in the southwestern town of
Pamiers that makes paints for the aviation industry.
Airline Air France-KLM SA isn't entirely happy: About 40% of the
airline's costs are in dollars, mostly in fuel expenses, so that
the strong dollar partially cancels out the benefits of lower oil
prices. But the airline is hoping that the low euro will revitalize
the European economy, helping its sales at home. It is also
stepping up its marketing in the U.S. to lure more Americans to
spend their summer vacation in Europe.
"We expect U.S. customers will be a boost to our top line," he
said. "Overall, the impact is favorable."
Italy's fashion and luxury-goods makers are also starting to
feel relief, after suffering from a plunge in sales to Russia last
year amid political tensions and sanctions relating to the war in
Ukraine.
Fashion house Salvatore Ferragamo is getting a boost both from
global sales and from tourists--whether from North America or
Asia--visiting Europe, where their money is going further, said
Chief Executive Michele Norsa.
"We've seen Chinese everywhere in the world spending money," Mr.
Norsa said. "The dynamics of our retail outlets in Italy...have
also been extraordinary," including in the recent period after the
Chinese New Year, he said.
Visitors from China to Europe spent 34% more in January than a
year earlier, according to Marie Bergfelt, a spokeswoman for Global
Blue, a Swiss-based firm that processes tax refunds for tourist
travelers.
U.S. companies see mostly negatives, however.
The euro's slide "is hurting us," Jeffrey Jacobson, executive
vice president of Xerox Corp.'s document technology business told
investors in a March 5 conference presentation. Xerox generated
about 20% of its $19.5 billion in revenue last year in Europe.
Mondelez International Inc., maker of Oreo cookies and Cadbury
chocolates, gets 80% of its revenue in currencies not tied to the
dollar. The company said last month that it has raised prices in
Europe to make up for the falling euro. But some European stores
didn't cooperate, prompting Mondelez to pull its products from
their shelves. At other stores, shoppers chose cheaper
alternatives, causing Mondelez's sales to drop, Chief Executive
Irene Rosenfeld said on a Feb. 11 call with analysts.
"There's no question: in Europe, in particular, we are
experiencing some short-term headwinds as consumers and customers
adapt to the new prices, " Ms. Rosenfeld said.
For many companies on both sides of the Atlantic, the euro's
gyrations will take time to filter through to prices and profits.
Exporters typically try to insulate themselves from currency swings
through hedging and contract terms.
French winemaker Gilles Crochet, for example, said he hasn't yet
seen the impact of the lower euro. Although he exports 65% of his
production and the U.S. is his top market, his orders are booked
and priced one year in advance. Besides, such financial details
aren't what interests him most.
"I don't think of currency," the Loire vintner said. "We're
artisans, not merchants."
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