International Exposure Helps Earnings, But Not Necessarily Domestic Market

Includes: DD, MCD, T, UAUA
by: Grace Cheng

Earnings reports this quarter continue to show that companies with a lot of international exposure are benefitting as that exposure hedges against any downside in the US economy. McDonald’s (NYSE:MCD) profit rose 24% thanks to a weaker dollar and strong international sales. For Q1 the company earned $946.1 million, or 81 cents per share. Up from $762.4 million, or 62 cents per share, for Q1 last year. European revenue grew by 23% and revenues in Asia, the Middle East and Africa grew by 24% giving both regions double digit growth. This was in sharp contrast to US same-store sales which grew at 2.9% in Q1.

McDonald is not known as a high-end eatery thus should not be as affected by an economic slowdown. The huge foreign revenue growth may be more a reflection of how a low US dollar affects companies’ earning in a higher foreign currency rather than a sign of large overseas expansion. Investors as of yet seem unimpressed, and the stock has moved slowly downward since the news.

DuPont’s (NYSE:DD) profit for Q1 rose 26% to $1.19 billion, or $1.31 a share, from $945 million, or $1.01 a share, for Q1 last year, on strong demand for its crop protection chemicals and biotech seeds. Much of this demand was due to soaring grain prices which have led farmers to use more high-yielding biotech seeds, and to increase their use of fertilizers and crop protection chemicals. The downside was that US volume decreased 5%, with DuPont warning that weakness in the US is likely to weigh on strong overseas growth through the rest of 2008.

As oil once again reached a new high above $118 a barrel, another US airline is feeling the pinch. United Airlines’ parent UAL (UAUA) reported a $537 million Q1 loss which it has blamed on high fuel prices and said it will be cutting 1,100 jobs and reducing its flights as it struggles to cope in what it called an “extraordinarily difficult” environment for airlines. Another way UAL - as well as carriers Continental, Delta, Northwest, US Airways - is trying to cope with higher fuel prices is by charging passengers $25 for a second check-in bag. UAL just emerged from bankruptcy in 2006, and due to high fuel prices, has been struggling ever since.

One US company that managed to make a good profit on US soil was AT&T (T: 37.87 +0.28 +0.74%) whose earnings rose 22% to $3.46 billion, or 57 cents per share in Q1 compared with $2.85 billion, or 45 cents per share, during Q1 last year. Revenue also rose 6.1% to $30.7 billion. This growth was due to strong demand in its wireless division - with strong iPhone sales - and was generally in line with analysts’ expectations.