Dollar’s rise bites big Georgia companies

A different picture emerges for Georgia’s smaller public companies.

Among the 31 Georgia companies with quarterly revenue between $100 million and $1 billion, the median profit increase was almost 21 percent compared to a year ago. The typical company’s revenue increased by 6.4 percent.

The AJC’s analysis was based on companies’ filings to the federal Securities and Exchange Commission, plus earnings data compiled by Calcbench, a firm that helps clients analyze data from corporations’ electronically filed disclosures. A complete list of the 50 companies and their first-quarter financial performance is available on our premium website at www.myAJC.com/business.

The strong dollar is the main culprit that split the paths of Georgia’s largest companies from the state’s smaller companies. Most of the largest corporations are multinationals, while the smaller firms are generally less dependent on overseas customers.

While the dollar has recently weakened, it’s still 20 percent more expensive compared to the euro than it was a year ago. Likewise, the yen and many other currencies are cheaper compared to the dollar.

The strong dollar has made U.S. companies’ goods and services more expensive in local currencies. Likewise, it has reduced the value of their foreign profits in dollar terms.

“This wasn’t just a little move,” said Don Wilson, chief investment officer of Atlanta wealth management firm Brightworth. “The strengthening of the dollar has been very sharp.”

Farm equipment hit

AGCO, a Duluth-based multinational that makes and sells much of its farm equipment overseas, saw a 27 percent drop in revenue and a 70 percent drop in profit in the first quarter. AGCO said the decline was due to the higher dollar and weak prices for farm commodities, which reduced farmers’ demand for new tractors, combines and other equipment.

In response to the hit, AGCO cut production workers’ hours 21 percent and “significantly reduced the size of our workforce,” the company said recently.

Global beverage company Coca-Cola and Columbus-based insurer Aflac, which has much of its operations in Japan, likewise cited adverse currency trends for weaker financial results.

Coke’s first-quarter profits fell 3.8 percent compared to a year ago, while Aflac’s declined more than 9 percent.

Many companies were caught flat-footed by the big rise in the dollar’s value because the currency had mostly been getting cheaper for more than a decade, said Rick Lavina, managing director of corporate banking for HSBC Bank USA.

“If you had 14 years of (the dollar) going in a certain direction, your policies are going to be set up for that,” he said. Many companies weren’t using currency hedges to protect against a sudden rise in the value of the dollar.

But now that major currencies have made their biggest swing in years, “everyone has to step back and decide what to do,” he said.

Meanwhile, the recent steep drop in crude oil prices over the past year hobbled many of the nation’s oil producers and suppliers. Despite a recent jump above $60 a barrel, crude oil’s price remains almost 40 percent cheaper than it was last July.

Cheap fuel has been a boon to consumers and transportation firms like Delta Air Lines. Delta had a record first-quarter profit of $746 million due to lower fuel costs.

“While the strong dollar is creating headwinds with international revenues, it also contributes to the lower fuel prices which will offset those headwinds with over $2 billion in fuel savings this year,” Delta Chief Executive Richard Anderson said recently.

Lower oil prices were bad news for some Georgia firms, however.

Drilling cutbacks

RPC Inc., an Atlanta-based oil services company controlled by Atlanta’s billionaire Rollins clan, reported an 80 percent decline in profits as oil producers cut back on drilling new oil wells.

“During the first quarter of 2015 our customers reacted quickly and meaningfully to the declining price of oil and the general market sentiment that the global oil market is oversupplied,” said RPC Chief Executive Richard Hubbell.

Indeed, the combination of a tougher environment for exporters and energy companies worried economists and folks on Wall Street who fear the nation’s largest companies could be headed for a so-called “earnings recession” of falling profits.

Companies in the S&P 500 — the nation’s 500 largest corporations by market value — have so far reported little or no profit growth in the first quarter compared to last year, and the first decline in revenue since 2009, according to FactSet, a securities data service. Moreover, Wall Street analysts expect lower earnings for the next two quarters compared to last year.

The broader economy also felt the nip last quarter, as winter storms and weak exports caused growth to nearly stall. The government recently reported that the economy grew at only a 0.2 percent annual pace in the first quarter.

But so far, many of Georgia’s smaller public companies have grown at a healthy rate.

Total System Services, a Columbus-based credit card payments processor, said profit rose in the first quarter by 58 percent, to almost $78 million, thanks to growth of its credit card accounts and additional business from earlier acquisitions.

And lighting manufacturer Acuity Brands said rising home and building construction activity propelled record revenue and profits in its most recent quarter. The Atlanta company said profits increased 42 percent in the quarter, to $46 million, while revenue rose almost 13 percent.

Wilson, with Brightworth, said there’s probably a small but higher risk of a recession due to challenges like the higher dollar. But, he added, “I think more likely we’re just in this slow growth environment. We’ve been in it for five or six years, and we just continue.”

— Sean Sposito contributed to this report.