Microsoft slashed its fourth-quarter profitability and earnings projections on June 2, becoming the latest U.S. corporation to notify of the impact of a stronger dollar.
An aggressive Federal Reserve and increased geopolitical tensions have driven the dollar up 14 per cent against a basket of currencies in the last year, forcing companies like Coca-Cola Co and Procter & Gamble to lower their expectations for the rest of the year.
A stronger dollar generally consumes the earnings of multinational corporations that have extensive global operations and convert foreign currencies into dollars. Microsoft has lowered its sales forecast for all three segments, which include Windows products, cloud services, and personal computing.
Corporate hedging activity has increased as more businesses seek to protect their revenues from the impact of market volatility in the face of rising inflation. It’s indeed common for businesses to preserve themself from unusual currency transitions, however, the intensity comes after years of low forex fluctuation when market volatility had little impact on income.
Revenue for the quarter is expected to be between $51.94 billion and $52.74 billion, down from a previous range of $52.40 billion to $53.20 billion. Microsoft reduced its profit forecast from $2.28 to $2.35 per share to between $2.24 and $2.32 per share.
Considering Refinitiv data, analysts expect earnings per share of $2.33 on revenue of $52.87 billion. In April, the company forecasted double-digit revenue growth for the next fiscal year, owing to increased demand for its office software and cloud services as economies reopen and businesses shift to a hybrid model that allows employees to work from both the office and from home.
