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Microsoft (NASDAQ:MSFT) lowered its fiscal fourth-quarter revenue guidance, and MSFT stock fell 2.5% in response. The company cited a challenging microeconomic environment and unfavorable foreign exchange impact as the primary drivers behind the reduced forecast.
The tech giant now expects revenue between $51.94 billion and $52.74 billion. This is represents a slight decrease from previously expected sales between $52.4 billion and $53.2 billion. The change puts the company below consensus analyst forecasts of about $52.87 billion in revenue. The revision was a consequence of the additional foreign exchange impact, which is expected to be a loss of $460 million.
The company also adjusted its diluted earnings per share (EPS) from $2.28 on the low end and $2.35 on the high end to a range between $2.24 and $2.32. Analysts had previously expected EPS of $2.33. The change was due to an expected foreign exchange rate impact of 3 cents.
While the news put MSFT stock in the red today, it’s not a complete surprise. Microsoft leadership had previously issued warnings regarding the potential impact forex changes may have on the company’s performance.
In April, Microsoft CFO Amy Hood noted the potential for a forex impact:
“We expect other income and expense to be negative $50 million reflecting FX remeasurement impact based on market conditions in April … Similar to the rest of our guidance, further equity and FX movements thru Q4 are not reflected in this number.”
MSFT Stock Dips on Strong Dollar
Current market conditions have had noticeable effects on foreign exchange rates. Russia’s invasion of Ukraine, China’s Covid-induced shutdown and a generally tumultuous global trading environment have pushed the U.S. dollar to its highest level this century.
A strong dollar can be considered both a pro and con, depending on context. U.S. consumers benefit from comparably cheaper foreign goods. However, because American products are relatively more expensive overseas, export profit is reduced — sometimes substantially.
For a massive global enterprise like Microsoft, even modest changes in exchange rates can have an immediate impact on its bottom line. MSFT is down nearly 20% year-to-date, which, in the context of the overall stock market, is actually a fairly mild loss. The tech-heavy Nasdaq composite is down 23% this year as rising interest rates and Treasury yields continue to push investors toward bonds, value stocks and other low-risk investments.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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