Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What's happening: Shares of National Instruments (NASDAQ:NATI) fell as much as 12% on Wednesday morning in the wake of the company's release of first-quarter results. Although earnings per share were 50% above Wall Street's consensus estimate, revenues missed their mark, with guidance for revenues in the current quarter also short of expectations. By 12:30 p.m., shares were down nearly 8% from the previous close.

The following table summarizes National Instruments' "hits and misses":



Analysts' Consensus Estimate

Q1 Revenues – MISS

% Surprise

$289.5 million


$302.5 million

Q1 Earnings per Share* - BEAT

% Surprise





Company Guidance


Q2 Revenues

$290 million-$320 million

$324.2 million




*Adjusted. Source: Thomson Financial Network, National Instruments

Why it's' happening: The surge in the value of the dollar has been a recurring theme during this earnings season. (On Sunday, the Financial Times reported that the strength of the dollar had reduced S&P 500 revenues by more than $20 billion so far – and that was before Apple had reported.) National Instruments was going to be hard-pressed to escape that trend. As CEO James Truchard pointed out on yesterday's conference call, "approximately two-thirds of [National Instruments'] revenue is recognized in currencies other than the U.S. [dollar], with a heavy concentration in Europe."

Given the first-quarter earnings "beat" and the fact that the midpoint of the company's guidance range for EPS in the current quarter, $0.26, is higher than analysts' estimate, there is good reason to believe that the market is focusing on revenues today.

In that context, it's worth making a few observations. First, in constant currency terms National Instruments performed well; revenues were up across all regions, with the U.S. experiencing the smallest rise, at +4%. Europe and emerging markets were particularly strong, at +10% and 19%, respectively. On a constant currency basis, consolidated revenues grew 8%. On the same basis, the midpoint of the guidance range represents a 5% increase -- unspectacular, but hardly disastrous.

Second, National Instruments began readjusting its local currency prices in April to mitigate the dollar's rise. As CFO Alex Davern put it on the call:

Our core strategy for sustainably managing the impact of currency volatility relies on strong product differentiation to enable us to adjust local currency pricing quarterly to help mitigate the currency impact for which we do not have a natural hedge.

Such pricing power through differentiation is evidence that National Instruments has a competitive advantage.

Why are National Instruments' shares falling today? Perhaps because, at a forward price-to-earnings multiple of 30, per research firm Morningstar, they were priced to perfection. For the underlying business, however, it's onward and upward.