Some of Long Island's largest companies are caught in a macroeconomic vise as the strong U.S. dollar, which has climbed 31 percent against the euro in the past 12 months, squeezes export sales. Analysts say the foreign exchange pain is unlikely to ease soon -- and is also hurting smaller Island companies that export.
Pall Corp., Aceto Corp., Comtech Telecommunications Corp. and Henry Schein Inc., Long Island's largest public company by revenue, are blaming foreign currency exchange for trimming millions of dollars from quarterly revenue. Plus, multinational companies stockpiling profits in the eurozone have seen the value of that overseas cash depreciate at an alarming rate.
John A. Rizzo, chief economist for the Long Island Association, the largest business group in Nassau and Suffolk counties, said exports help support the region's economy. They account for about 7 percent of the annual gross domestic product here. Long Island's exports totaled more than $10 billion in 2013.
Rizzo said the European Union's efforts to stimulate its economy by keeping interest rates low could weaken the euro further and put U.S. exporters in a deeper hole.
Though Long Island's global companies are more likely to be exporters, small-business exporters are also feeling the foreign currency bite.
"When it comes to foreign exchange risks, many local Long Island businesses are facing the same challenges as major corporations," said Leon Aduculesi, vice president of Citigroup Inc.'s commercial banking unit. "U.S. companies may be more vulnerable now to competitors in the European Union that are pricing in local currency."
For multinational companies, the foreign exchange impact is already sizable.
At Port Washington-based Pall, a maker of filtration products, chief executive Larry Kingsley blamed the foreign currency "headwind" in cutting the fiscal year's revenue forecast by 7 percent, or $200 million. Kingsley said in a statement that foreign exchange also is the prime driver in the company's reduced forecast for annual earnings per share. That estimate took a 40 cent hit to a range of $3.65 to $3.85.
Euro's downward trend
Hofstra University finance professor Anoop Rai said that December was the turning point when the euro took a "dramatic turn" downward. The euro, the currency used by 19 eurozone countries, including Germany, France and Italy, has continued its descent in recent days. Rai said that if European Central Bank President Mario Draghi sticks to his plan of buying bonds to stimulate the European economy, U.S. exporters to the eurozone will be singing the blues for a long time.
"If the change is permanent," Rai said, U.S. exporters will "really have to change their policies." He said that companies may need to change their marketing strategy, alter product pricing and even consider "moving overseas if they have to."
The value of currencies "floats" in a global market largely based on supply and demand. The exchange rate for a given currency -- for example, how many euros a dollar buys -- is influenced by factors like the economic performance of the currency's home region, its interest rates and inflation forecasts.
Harder to sell overseas
Stunted economic growth in the eurozone has contributed to the euro's decline, while economic recovery in the United States has driven the greenback higher in value.
Based on Friday afternoon's exchange rate, $100 would buy 94 euros. Compare that to five years earlier, when $100 would buy only 75 euros.
This change makes it harder for U.S. companies to sell overseas. A buyer in the eurozone would have to pay higher prices for products denominated in U.S. dollars unless the seller decides to cut prices and accept a smaller profit. Long Island multinationals are blaming this sticker shock for reduced sales.
Besides the eurozone nations, other countries with weak currencies include Canada and Russia.
At Henry Schein alone, foreign currency exchange sapped $78.4 million from net sales of $2.7 billion reported by the distributor of dental, veterinary and medical supplies in the quarter ended Dec. 27.
Schein chief financial officer Steven Paladino said in a conference call that if the dollar-euro exchange rate remained stable, it would cut 8 to 10 cents from the company's earnings per share for the fiscal year, which are expected to come in at $5.90 to $6.
At Comtech, a Melville maker of satellite Earth station modems and over-the-horizon microwave systems used for communications, about 60 percent of sales in the second quarter of fiscal 2015 came from abroad, including the Middle East and Russia.
Michael Porcelain, Comtech's senior vice president and chief financial officer, said in an interview that global currents hurt the company in two ways. The Russian ruble has tanked relative to the U.S. dollar, and the tailspin in energy prices has meant Middle Eastern and Russian customers have less to spend. In March, Comtech posted net sales for the quarter ended Jan. 31 of $81.8 million, down from $85.5 million in the year-ago period.
"The slowdown was significant in the second quarter," he said. "We believe it's temporary. Probably most of our customers just waited and delayed. We'll have to see how the second half of the year plays out."
One twist in the story of the declining euro involves the cash stockpiles of U.S. companies held in Europe and other offshore locations. That cash is now worth less when translated back into dollars.
Offshore cash worth less
Fortune 500 companies have more than $2.1 trillion in profits parked offshore, according to a study by Citizens for Tax Justice, an advocacy group. Included in that study was CA Technologies Inc., the business software company that moved its headquarters from Islandia to Manhattan in 2014 but still employs more than 1,000 people on Long Island. The company's overseas cash stash: $2.3 billion, according to the group's report.
CA officials declined to comment, saying they were in a "quiet period" before reporting quarterly earnings.
Rai said that some companies were biding their time, waiting for Washington to grant them a tax break on funds repatriated from places like Europe and the Cayman Islands (a haven for corporate cash) to the United States. As it turned out, he said, currency fluctuations have cut the value of those stashes more than the companies could recoup with proposed tax concessions.
"The currency has gone down 25 percent by waiting," Rai said. "Even if they get a tax break now, they should have brought their money back a year ago. I bet a lot of CFOs are kicking themselves for not bringing back more cash last year."
Among the small Long Island businesses exposed to currency fluctuations are the tourist magnets of the East End, but so far the tourism business hasn't felt the impact. Yan Baczkowski, president of the Long Island Convention & Visitors Bureau, said his agency projects a "modest increase" in international tourism as visitors to New York City branch out to visit Long Island's beaches, wine country and the Montauk setting for Showtime's "The Affair."
The reason? Many Europeans booked vacations before the euro hit bottom and are likely to overlook the foreign exchange penalty in any case because New York is viewed as a high-cost destination.
"I wouldn't go so far as to say we're currency-proof, but our association with New York does . . . give us a certain value," he said. "They're willing to pay a little bit more."
"Long Island tends to be for repeat travelers," he said. "They're going to come to the wine country. They're going to take advantage of our beaches. That reason outweighs the difference of the exchange rate."
Still, Baczkowski said that if the euro continues to slump and reaches the point where one euro trades for one U.S. dollar -- what is known as "parity" -- then Long Island tourism could face a tipping point.
"If we go beyond parity, we'll have a little bit of a problem," he said.
Foreign goods pricey here
Unfortunately, Long Islanders in many cases aren't seeing the strong dollar translate into cheaper European luxury goods. European retailers like Prada and Gucci could reduce the price of their goods due to the dollar's strength. But so far they have resisted price cuts, since strong demand in the United States means they still can sell their goods at high prices.
Marshal Cohen, chief industry analyst at Port Washington-based researcher The NPD Group, said luxury brands like Prada and Hermès might be quicker to put slow-moving items on sale but would hesitate to cut list prices for fear of devaluing their brand.
"The luxury consumer would say: What's so special about this?" he said.
At the same time, savvy U.S. buyers of luxury goods could go to foreign websites to capture the currency discount, he said.
One upside may be for Long Islanders who travel overseas.
Visitors to Toronto, Moscow, Berlin and Barcelona can expect to see foreign exchange bargains when they shop, dine and book hotels.
Schein CEO Stanley Bergman, speaking on the conference call, said the sinking euro also could eventually help stir ailing European economies.