One of Coca-Cola's top execs just made a hell of a call on the US dollar

Brian Sozzi

Coca-Cola’s new chief financial officer John Murphy has just channeled his inner currency trader for a somewhat contrarian call on the U.S. dollar.

“We think the dollar is at the — towards the end of a strong cycle, and hence, we think that we're in for a benign environment over the next year, 1.5 years,” Murphy told Wall Street analysts on Coca-Cola’s second quarter earnings call on Tuesday.

Coca-Cola’s (KO) investors are surely hoping Murphy has this call nailed.

The beverage giant — which is exposed to some 70 global currencies — saw its second quarter earnings per share hit by 9% due to currency headwinds. Those headwinds are primarily the result of the ongoing strength in the U.S. dollar, which has drawn the ire of President Donald Trump in recent months. The U.S. dollar has been on a march higher for the better part of the past year, hurting the top and bottom lines of multinationals such as Coca-Cola, Caterpillar (CAT) and Kimberly-Clark (KMB).

A strong U.S. dollar tends to reduce the value of overseas sales and profits for multinationals. The U.S. dollar is up about 3.2% over the past year alone.

Currencies in emerging markets like Brazil and India have also been particularly volatile.

Currency headwinds

Coke expects the U.S. dollar’s strength to hurt its third quarter operating income by about 6%. Murphy then sees the impact waning in the fourth quarter and into 2020, leaving investors hopeful the company’s sales and profits will get a nice jolt.

Despite the global currency headwinds, Coca-Cola blew Wall Street away with its second quarter results. The company continues to successfully control costs, increase prices and release new products. And it showed in the quarter.

Coca-Cola’s adjusted earnings per share came in at 63 cents, higher than analyst forecasts for 61 cents a share. Total revenue rose 6% to $10 billion, in-line with forecasts.

Organic revenue growth, a key measure for Coke that is closely watched by Wall Street, rose 6%. Analysts had anticipated 4% growth.

Brian Sozzi is an editor-at-large and co-host of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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