Strong Dollar Makes Big Mac Profits A Little Less Big

While McDonald's MCD recent sales figures were abysmal, hidden beneath the headlines was the detrimental effect that the strong dollar had on sales as well. Although multinational companies like McDonald's are continually exposed to currency conversion risk, the recent strong advance in the dollar versus most foreign currencies will likely put a dent in overall earnings for companies that do significant business overseas. For the fourth quarter, the increase in the dollar is probably going to reduce earnings for McDonald's by $0.07 to $0.09 a share, or roughly 8 percent. With QE at an end in the U.S., while Europe and Japan consider additional stimulus, the U.S. dollar may be strong for an extended period. This may not bode well for future earnings streams of the big multinationals, providing a significant headwind for a further advance in equity prices overall.