The dollar’s impact on US corporate earnings continue! 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 PfizerJohnson & 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. 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,
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 currency movements.
According to Lisa Twaronite of Marketwatch, “Weak dollar is often-overlooked key to earnings.” And she quotes, your’s truly.