The stumbling euro wreaked havoc on Orange County companies with operations in Europe last week and set the stage for a rough fourth quarter.
Shares of Irvine heart valve maker Edwards Lifesciences Corp. plunged last week after the company said the weak euro would mean “only slightly higher” fourth quarter sales.
Likewise, officials at Fullerton-based Beckman Coulter Inc., a maker of medical diagnostic products, said the euro could cut into projected fourth-quarter sales growth by up to 6 percentage points.
“The euro is an uncontrollable element in achieving our business objectives,” said Jeannie Herbert, Beckman’s investor relations director. “It’s our biggest wild card.”
The sagging European currency fell to an all-time low late last month against the dollar before making a modest recovery last week, helped in part by data showing tamer U.S. growth.
While OC companies are feeling the sting of European sales that are worth less in dollars than they were a year ago, officials said they are looking to currency hedging to help offset the euro’s fluctuations.
Officials at Irvine pharmaceutical maker Allergan Inc. downplayed the euro’s potential to harm their long-term business, in part because of foreign futures contracts and other hedging tools.
“Although the weak euro has created challenges for all multi-national, dollar-based companies, we believe that our operating leverage provides us with the ability to achieve or exceed our goals,” said Allergan CEO David E.I. Pyott in the company’s third-quarter earnings statement.
For the fourth quarter, Allergan projects sales of $400 million to $415 million, up from $380.3 million in the fourth quarter of 1999. Earnings per share for the quarter could come in 20% higher than a year ago, the company said.
“Although a falling euro certainly impacts sales, Allergan has always managed the business accordingly,” said Suki Shattuck, the company’s investor and media relations director.
In its third-quarter results, Allergan reported a 3 percentage-point drop in sales growth due to an 8.6% drop in the euro’s value during the period. Despite this, the drug maker reported higher third-quarter sales and earnings that beat analysts’ profit estimates by a penny.
Beckman officials said the flailing euro clipped about $22 million off sales for the year through the third quarter, or nearly 2 percentage points off sales growth, according to Herbert. The biomedical company reported third-quarter profits in line with Wall Street forecasts.
The upside for Beckman, which does about a quarter of its business in Europe, is that the company is seeing some savings on spending there. The company pays employees there in euros and also buys business supplies in the currency, measures it dubs “natural hedges.”
“Natural hedges are things you do just by having business there,” Herbert said. “You pay for expenses with the euro.”
Beckman’s treasury department uses conventional hedging tools, she said.
The outlook beyond the fourth quarter is mixed. Edwards Chief Executive Michael Mussallem said in the company’s third-quarter results statement that he sees the euro’s effect carrying over to next year.
Beckman officials issued a more rosy take on the euro’s prospects for 2001, projecting an average for all of next year “above 90 cents,” Herbert said. Late last week, the euro was trading at about 86 cents. n
