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By Robert Johnson, CFA and Jeremy Glaser | 01-28-2015 11:00 AM

Consumer Gain, Corporate Pain

Some factors that are benefiting U.S. consumers are simultaneously weighing down corporate earnings in key sectors, says Morningstar's Bob Johnson.

Jeremy Glaser: For Morningstar, I'm Jeremey Glaser. There are a number of economic factors right now that are beneficial to the consumer but are really weighing on corporate results. I'm here with Bob Johnson, our director of economic analysis, to make sense of it all.

Bob, thanks for joining me.

Bob Johnson: It's great to be here today.

Glaser: So, we've seen, as we get into earnings season here, a bit of a bifurcation where consumers still seem pretty happy but management teams are mainly downbeat. Let's look at some of these factors and see who they are helping. The first is, of course, the strong dollar. What are you seeing in terms of the dollar impact on earnings so far?

Johnson: Well, it's been a little bit bigger than people have been thinking, and we've been talking about the dollar for a long time. Depending on which metric you use, it's 12% to 18% higher than it was just six to 12 months ago. So, it's been a big change in the dollar, and it's really come home to roost.

Just to pick one example, this week Procter & Gamble (PG) reported earnings which were particularly disappointing. And one of the things they cited was the currency. They talked about in the year ahead, with currency wrapped in, that revenues were going to be down 6% and profits 12% because of currency effects. So, it is certainly a big number, and a lot of S&P 500 companies have a lot of revenues in Europe. Even though there are a lot of staple businesses in the S&P 500 that don't have a European exposure; overall, it is something like 13% of S&P 500 revenues come out of Europe. So, that's a pretty big number. And certainly, with the currency going the wrong way, it's having some effects when we translate those back to the U.S.--and that's even before we consider that the products themselves probably aren't as price-competitive as they once were.

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