By Kristin Broughton

Some U.S. companies are stepping up efforts to minimize the pain inflicted by the strong dollar on their earnings after a recent surge in the value of the greenback capped off years of broad, if fitful, gains against other currencies.

The strong dollar has been a continuing nuisance for U.S. companies with global operations, which convert their earnings abroad into dollars when they report results. The strength of the U.S. dollar has made the conversion more expensive, cutting into profit and adding an element of unpredictability into quarterly earnings and forecasts. The WSJ Dollar Index, which tracks the dollar against a basket of other currencies, rose 6% during the fourth quarter of 2024. While the index has come down from its latest peak in mid-January, it remains up 2.4% as of Wednesday from a year earlier.

Behind the greenback's latest rise is a mix of factors, including the Federal Reserve's pause on interest-rate cuts; the prospect of significant U.S. tariffs; and the relative strength of the U.S. economy compared with the rest of the world, economic and financial advisers said. The dollar is expected to remain strong in 2025, advisers said.

Companies in recent years have worked to minimize the impact on their results, including by drawing investors' attention to constant-currency metrics, which smooth out the impact of foreign-currency fluctuations. In recent weeks, companies including E.l.f. Beauty, Medtronic and Rockwell Automation said they are taking steps ranging from potentially adding a hedging program, to adjusting prices abroad and implementing temporary cost-savings measures.

"Investors have more confidence in firms and management teams that continue to deliver on expectations," said Amol Dhargalkar, managing partner and chairman at the risk-advisory firm Chatham Financial.

Companies looking to neutralize the impact of foreign-exchange swings have several options. They can hedge using forward contracts, which lock in an exchange rate at a future date, or options, which provide the right but not the obligation to exchange at a given rate in the future. Companies can also use operational hedges, such as more closely aligning expenses with revenue in a given currency. Some companies, meanwhile, choose to do nothing and take a hit on their quarterly earnings, due to the cost of hedging, a lack of visibility into their currency exposure, or the fact that currency swings don't reflect underlying performance.

During its latest quarter, which ended on Dec. 31, cosmetics company E.l.f. Beauty recorded an unanticipated foreign-currency loss of $7 million, because of the strength of the U.S. dollar against the British pound. The Oakland, Calif.-based company doesn't hedge but is considering doing so as it works to expand internationally, according to Chief Financial Officer Mandy Fields. The $7 million foreign-currency loss was the company's largest to date related to the British pound, she said.

"As we look forward to 2026 -- our fiscal '26 -- that's where we're having these conversations," Fields said, referring to discussions around starting a hedging program. The company, whose fiscal year ends in March, is also considering reporting its results using constant-currency metrics, Fields said.

In the latest quarter, profit at E.l.f. fell 36%, to $17.3 million. Sales climbed 31%, to $355.3 million. The company's share price has declined by more than 60% over the past year, closing on Wednesday at $71.76.

Medical-device company Medtronic is aiming to offset currency effects by implementing dynamic pricing in emerging markets, updating prices as often as every month to reflect foreign-exchange rates. The company -- which has its headquarters in Ireland and its main corporate office in Minneapolis -- is also setting foreign-exchange-adjusted sales targets for its employees, Gary Corona, the company's interim CFO, said on a Feb. 18 earnings call.

Medtronic, which generates nearly half of its sales outside of the U.S., reported a negative foreign-currency impact of $104 million during the quarter ended Jan. 24. The company earned $1.29 billion, down 2% from a year earlier. Foreign currency will have a "significantly smaller" impact in the coming fiscal year, which begins in April, compared with the current one, Corona told investors on the call.

Currency swings at Medtronic have masked otherwise strong earnings-per-share growth in recent quarters, according to David Rescott, a senior research analyst at Baird, the investment firm. Any efforts to further neutralize the currency effects would help investors see the company's underlying performance, Rescott said.

Rockwell Automation, the Milwaukee-based industrial automation company, said it is taking temporary, unspecified cost measures to stem the impact of foreign-exchange effects on its results. The company is in the midst of a larger cost-cutting program to improve its profit margins, which includes efforts such as not backfilling positions when employees leave the company, analysts said.

During the quarter ended Dec. 31, Rockwell's revenue fell 8%, to $1.88 billion. Profit declined 14%, to $184 million. The company expects to take a 35-cents-per-share hit from foreign exchange during its fiscal year, which ends in September. The company is forecasting adjusted earnings per share of between $8.60 and $9.80 for the year.

"We're going to hold those reins tight so we can continue to drive toward that adjusted EPS midpoint of $9.20," Christian Rothe, Rockwell's CFO, said on a Feb. 10 earnings call, referring to the company's cost-control efforts.

Write to Kristin Broughton at Kristin.Broughton@wsj.com

(END) Dow Jones Newswires

February 27, 2025 05:30 ET (10:30 GMT)

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