Canadian dollars.JONATHAN HAY
Companies are grappling with a steep and speedy decline of the Canadian dollar that is bringing joy to some, but despair to others.
The loonie has fallen 15 per cent relative to the U.S. dollar in the past seven months, a rapid decline that has taken many Canadian firms by surprise. In the corporate earnings reporting season now under way, most chief executive officers and chief financial officers have had to explain to investors and analysts just how the plunge is affecting them, and if there is anything they can do about it.
It can be a complex issue for corporations. Manufacturers that export their products to the United States tend to gain, but this can be offset if they need to import equipment or parts. Companies selling imported products are usually hurt – although not if the imports are from outside the United States, since other currencies have fallen in tandem with the loonie. The slumping price of oil is another wild card for many.
Indeed, the drop in the value of the dollar isn't something that happens in isolation, said Toronto-Dominion Bank economist Leslie Preston. All the other factors that influence the dollar – oil prices, interest rates and economic expectations – also affect companies in different ways.
"A decline in the Canadian dollar is typically a symptom of other changes going on in the global economy," she said.
Still, for some firms, the loonie's fall is unabashedly bad news.
"I hate it," said Heather Reisman, chief executive officer of Indigo Books & Music Inc. She noted, on the company's recent third quarter conference call, that it is "demanding" for retailers whenever there is a big swing in the dollar.
A sharply lower dollar dramatically adds to the cost of imported books, but it is a tough decision for booksellers whether to start jacking up prices.
"We're extremely sensitive to wanting to address this impact, but we don't want to pass on all of this to our consumers," Ms. Reisman said. "So we're carefully managing it."
At the other end of the spectrum, forest products company Tembec Inc. sees only good things from a low dollar, because it sells a substantial amount of its output into the United States.
"If the currency stays where it is we're obviously going to do better," chief executive officer Jim Lopez told his firm's quarterly conference call.
In the struggling newsprint business, the currency shift will help Tembec, he said.
"Mills that might have been high-cost Canadian producers are now a heck of a lot more competitive," he said. "Likewise, there are some American mills that might have been sitting in a great place on the cost curve that now are not sitting in such a great place."
Mr. Lopez acknowledged that the low dollar is a pain for many Canadians, and "is creating some stress [for] people [who] like to go south for … winter holidays."
But for Tembec, "it certainly will be a boost in terms of our Canadian operations."
For many companies, the impact is mixed, and in some cases non-existent.
BCE Inc., for example, has hedged most of its 2015 operational expenses and capital spending that is done in U.S. dollars. CFO Siim Vanaselja told analysts on the fourth-quarter call that this has "effectively insulated" the company from exposure to the dollar's variations.
At Westjet Airlines Ltd., the lower dollar cuts into the gains the company enjoys from lower-cost jet fuel – which is priced in U.S. dollars. At the same time, it may trim the number of people travelling to U.S. destinations.
Westjet executive vice-president Bob Cummings told analysts that past experience shows that when the dollar falls, people tend to take shorter vacations and spend a little less money, but the impact is not great. And as his colleague, CFO Vito Culmone, put it, "Canadians will give up a lot, but not a trip to the sun."
BMO Nesbitt Burns chief economist Douglas Porter said the dollar's fall has happened so quickly that it is difficult to determine its full economic effects yet. However, he said, it appears that prices of goods imported from the United States are being adjusted upward quickly, already boosting core inflation here.
On the other side of the ledger, the benefits to the economy tend to take a little longer to show up, Mr. Porter said.
"It takes time to win new business, it takes time for firms to decide to invest anew in Canada, and it takes time for most businesses to decide to ramp up hiring as a result of improved competitiveness."
Over all, he said, "some of the negative effects of a lower Canadian dollar show up fast, while the positives take time."