Euro's slide pays off for many European firms

Paris

THE euro's slide against the US dollar is paying off for companies from German drug and chemical maker Bayer AG to French cosmetics giant L'Oreal SA, adding to optimism that the currency move is fuelling an economic recovery.

Bayer raised its 2015 sales and profit forecasts on Thursday because of the euro's drop, while drugmaker Sanofi said earnings per share will get a bigger boost this year than previously predicted from currency swings. L'Oreal last week said exchange-rate shifts were set to add nine percentage points to sales this year.

Besides lifting profits, the US dollar's greater buying power has helped European stock markets outperform US indexes this year and spurred acquisitions such as XPO Logistics Inc's US$3.53 billion planned purchase of French trucking company Norbert Dentressangle SA.

Even as the euro has pared its losses this month amid signs of weakness in the US economy, investors say they're confident the beneficial effects will last.

"The weaker euro has given European companies a competitive edge," said Dominique Carrel, a money manager at Etoile Gestion in Paris. "More positive news from forex impacts can be expected in coming quarters."

The euro slid 22 per cent against the US dollar in the four quarters ended March 31. The drop means products from the 19-country region now cost less in US dollars, while goods imported from the US are more expensive. US sales for European companies also are worth more when converted to euros.

Bayer's profit will increase by a "high-teens" percentage, compared with an earlier estimate of a low- to mid-teens percentage for this year, and sales will be as much as 49 billion euros (S$73 billion), higher than the previous forecast of about 46 billion euros, the company said.

"The guidance increase looks strong, largely driven by forex impact," said Simon Mather, an analyst at Barclays plc. "They got a bit more tailwind than we had expected."

Foreign-exchange movements, led by the euro's weakness against the US dollar, may add 12 per cent to Sanofi's earnings per share, said France's largest company by market value, up from a previous estimate of as much as 5 per cent.

If exchange rates as of March 31 persist throughout the year, L'Oreal would get a 9.3 per cent boost in sales, the company said on April 20.

Other European companies that have noted a benefit from the euro's slide in reporting first-quarter earnings include bank BNP Paribas SA, industrial-gas company Linde AG, carmakers Volkswagen AG and Fiat Chrysler Automobiles NV, Sartorius Stedim Biotech, a French maker of lab equipment for drug companies, and Portucel SA, Portugal's biggest paper and pulp company.

"One third of our sales are dollar-denominated and therefore by converting them into euros we expect to have some help there," Portucel chief executive officer Diogo da Silveira said in an interview.

Currency effects also are being felt outside the euro region. Sweden's krona dropped 25 per cent against the US dollar in the past four quarters, increasing the value of revenue generated outside the country for manufacturers like Atlas Copco AB, Sandvik AB and Alfa Laval AB.

The weaker krona and other exchange rate changes boosted Atlas Copco's operating profit in the first quarter by more than a billion kronor (S$158 million) compared with the year-ago period.

"Is this the best world we have seen? Well, it's pretty close to it, to be perfectly honest," Hans Ola Meyer, chief financial officer for the world's largest maker of air compressors, said on a conference call. "You have to go back many years to find comparable levels." BLOOMBERG