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Weak Dollar Boosting US Profits |
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Posted by SMAZ on Wed May 11 17:23:04 2011 Weak dollar helping U.S. profitsBy Matt Krantz, USA TODAY The weak U.S. dollar might not help national pride, but don't expect to hear U.S. companies complaining about it. The dollar in the first quarter was down 6.5% from a year earlier, says Deutsche Bank Private Wealth Management. That gave a significant kick to companies' profits, helping impress investors who already have lofty expectations after six quarters of earnings growth. Scores of companies have reported getting a bottom-line boost during the first quarter. Specifically, 40% of the 25 stocks in the Dow Jones industrial average that reported profits so far have pointed to the weak U.S. dollar for helping their profits, says John Butters at FactSet. The other five Dow stocks have not reported results yet. The weak dollar helps by making exported U.S. goods more price competitive and then boosting the value of sales overseas when converted back into dollars. "A weak dollar is a good thing for the U.S. economy right now," says Dirk Van Dijk of Zacks Investment Research. Companies benefiting from the weak dollar include: •Pfizer, a leading drugmaker, reported international revenue of $9.5 billion, which rose 2%, while the U.S. revenue was down 3%. However, half of the international revenue increase was due to the weak dollar. •Johnson & Johnson, the medical company, reported 7.3% higher international sales, while U.S. sales fell 0.6%. Yet roughly 44% of the international growth was due to currency effects. •IBM, the computing giant, had first-quarter revenue growth of 8%. It would have been 5% had it not received a currency boost, FactSet says. The weak dollar has been such a boon for companies, it's a top reason why earnings are beating expectations so handily, says Larry Adam, strategist at Deutsche Bank Private Wealth Management. Companies in the Standard & Poor's 500 get roughly half their revenue from overseas. Meanwhile, the weak dollar especially helps companies that get growing amounts of revenue from emerging nations, where the dollar stands to continue to erode, Adam says. If the weak dollar continues and pushes profit higher, companies may feel better about hiring, Van Dijk says. And that's a distinct possibility given that the dollar is likely to keep losing value because low U.S. interest rates do not support the currency, says Randy Warren of Warren Financial Service. "This is going to continue," he says. "The dollar is in a downward trend." |
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