Oracle’s earnings tells us more about currency effects

September 15, 2022 Leave a comment

This week’s note highlighted USD currency headwind risk.

https://robzdravevski.com/2022/09/12/the-effect-of-currencies-on-income-statements/

So, Oracle’s ‘currency headwind’ equated to nearly 15% of its quarter’s earnings.

No small change and it is a factual effect that the U.S. Dollar’s strength is having on American corporate earnings.

An extract from Oracle’s Q1 Fiscal 2023 earnings transcript is,

“The currency headwind this quarter was much higher than the 3% headwind that was present when we gave guidance. It was actually 6 points, even though due to rounding, it may look like 5%, and that’s a currency headwind to total revenue. It was, in fact, 6 points. And yet, we still exceeded our forecast on a reported basis, and we beat our constant currency revenue forecast by $200 million. We saw similar currency headwinds in EPS, which had an $0.08 negative effect, much worse than the $0.05 headwind present at the time of guidance in June.”

But with present USD strength being extended and stretched, in the spirit of positioning for ‘where the puck is going to be’, I’ll look for the contrarian effect to company earnings in the coming quarters.

In the meantime, well run Japanese companies should be ‘minting’ profits from their increasing competitive position of having a monumental weaker Yen.

September 15, 2022

by Rob Zdravevski

rob@karriasset.com.au

Filed under Finance & Investment Tagged with , , , , ,

My confusion about Japan

August 27, 2012 Leave a comment

 

If I “umm” and “ahh” long enough about something, my instinct tells me to stay away, especially when pondering about taking a trading position.

The longer that I look at Japanese politics and its economy, I can’t help conclude that’s it’s not a place to invest. I won’t fill this blog with stats in trying to prove my case. There is plenty of data covering Japan available for analysis.

Confusingly, Japan has suffered 20 years of deflation and at some point assets in that country should reach a point of being cheap. After all, it has iconic companies and brands that still have global marketshare and impact.

Yet, Japan has had 6 Prime Ministers in 6 years, it’s 10 year government bond offers a yield below 0.90% and it’s currency (Yen) is near its all-time high.

Why would you own these bonds and Yen?

“Umming” and “Ahhing” can help in telling you when to stay away but if the move in the pendulum is at such an extreme and fundamentals don’t warrant such a swoon, then rather than “watching”, a trade towards a reversion to the mean is worth a look.

What if the Yen weakened significantly and the yield on its 10 year bond tripled?

 

 

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