Good News For Earnings: Dollar Hits Record Low

The dollar’s impact on US corporate earnings continues. Last night, IBM blew away Wall Street when it reported that its 2008 profit will top its previous projections. Interestingly enough more than half of their 11 percent revenue was due to currency fluctuations!

The dollar matters.

The companies that will do the best this earnings season are the ones that are diversified geographically and have more than one line of business. Take Pfizer for example, they spend approximately 1 billion dollars on the launch of any new drug. Their earnings missed expectations, driving the stock down significantly at the open. In contrast, Johnson & Johnson beat the street due to higher sales in the consumer division and on our currency fluctuations (Revenues increased 7.7 percent in the first quarter with currency moves contributing a whopping 5.1 percent to growth). Pfizer would benefit to take a page out of Johnson & Johnson’s book since they were the ones that sold their consumer spending division to J&J in 2006.

The further the dollar drops, the more that it will help corporate earnings. The only way for the US economy to recover, is through exports. Yesterday, six companies reported earnings that were either directly or indirectly tied to earnings.

According to Lisa Twaronite of Marketwatch, “Weak dollar is often-overlooked key to earnings.” And she quotes yours truly.

Next up is Google! comScore expects a drop in ad clicks. But if Google has gone global, earnings may not be that bad.

Comments

[User 179751:]

That link you have, "Yesterday, six companies reported earnings that were either directly or indirectly tied to earnings." i think you meant currency change rather than earnings. Good stuff, never thought about currency change affecting stock. thanks!

2008 Apr 17 02:54 PM

[User 179751:]

my bad. lol

2008 Apr 17 03:02 PM

[huskerbob:]

So the good news is that the higher earnings are priced in declining dollars? So are the earnings actually stagnant or are they exceeding the rate at which the dollar declines?
Also, the further the dollar drops, won't consumer spending be diverted more and more to basic needs, gradually reducing more corporate earnings? For commodity prices to remain stable in nominal dollars they would have to decline in real value. That doesn't sound very likely, and doesn't sound good for the economy in the long run.

2008 Apr 18 01:20 AM

[buyforeclos...:]

Yeah no brainer exports help big time..but the dollar needs to correct and soon..that is just the way it is and yes it will hurt bottom lines

2008 Apr 19 10:56 PM