Falling dollar is perfect for corporate earnings

Discussion in 'Wall St. News' started by S2007S, Oct 9, 2009.

  1. S2007S


    After talking about a dollar that is at a 14 month low I think its just peaches and cream that its going lower, I mean if it can produce strong results for most of the companies in the s$p then who cares if its going down even further. A falling dollar good for most s$p companies is music to my ears.

    Even analysts haven't priced in the weaker dollar into earnings.....

    "The weak dollar's impact is probably not included in analysts' estimates for the third quarter, which means more chances for upside surprises, Dickson said. even calculated the price of the falling dollar into earnings."

    The dollar's slump is good news for corporate earnings
    Fri Oct 9, 2009 7:29pm EDT

    By Caroline Valetkevitch - Analysis

    NEW YORK (Reuters) - Next week investors could get the clearest indication yet of whether revenues are growing again for U.S. companies as a number of bellwethers are likely to see a benefit from the dollar's weakness.

    The earnings diary features companies like chip maker Intel Corp. (INTC.O), International Business Machines (IBM.N) and General Electric Co (GE.N) that stand to benefit the most from the U.S. dollar's steep decline in the third quarter.

    "We ought to see favorable currency translation for revenues and on the bottom line, and what that's going to do is set the tone that this is going to be an OK earnings season," said Fred Dickson, market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.

    More than 70 percent of Standard & Poor's companies .SPX beat earnings expectations in the second quarter on hefty cost cutting, allowing the market to rally throughout the summer. But investors have been eager to see an improvement in corporate revenue.

    The major indexes rose sharply this week, with the Dow industrials .DJI ending at a fresh 2009 closing high and the S&P 500 Index up 58 percent from its early March low, as optimism about third-quarter earnings took hold.

    Results from aluminum company Alcoa Inc (AA.N) underscored the positive mood when the company beat expectations on both earnings and revenue late Wednesday.

    Third-quarter earnings for S&P 500 companies are expected to decline about 25 percent from a year ago, compared with a decline of 27 percent for the second quarter, according to data from Thomson Reuters.

    S&P 500 companies' revenue is expected to fall 11.4 percent in the third quarter from the year-ago period versus a 14 percent drop in the second quarter, Thomson Reuters data showed.


    Analysts have been speculating about the impact of the U.S. dollar, which stands at 14-month lows against other currencies .DXY, on earnings since a big chunk of S&P 500 companies' sales come from overseas. That typically means better numbers when the overseas sales are translated into dollars.

    "Clearly some industries are more exposed to the international trends than others, and it may add to the rising earnings expectations," wrote Tobias Levkovich, chief U.S. equity strategist at Citigroup, in a research note.

    Within the S&P 500, 56.5 percent of total sales for information technology companies come from overseas, the highest of any S&P sector, he said. Both IBM and Intel are included in this group.

    Intel is expected to report revenues of $9.015 billion, which would be a 12 percent decline from the year-earlier period, according to Thomson Reuters I/B/E/S. In August, Intel raised its forecast for third-quarter revenue to $8.8 billion to $9.2 billion, spurring a rally in tech shares.

    Investors have bet on a strong quarter for the chip giant, as the stock is up more than 25 percent in the last three months, based on renewed demand in Asia and other recovering economies.

    The weak dollar's impact is probably not included in analysts' estimates for the third quarter, which means more chances for upside surprises, Dickson said.

    He noted it's tough to calculate the dollar's impact on earnings, particularly since some companies are involved in hedging against the dollar.

    Jason Trennert, chief investment strategist at Strategas Research Partners in New York, said, it's early in the season to say how much of an impact the dollar had on the quarter, "but it will undoubtedly help. There are no two ways about that."

    Among other companies scheduled to report next week are a number of top financial firms, including Citigroup Inc (C.N), Goldman Sachs (GS.N), Bank of America Corp (BAC.N) and JPMorgan Chase & Co. (JPM.N).

    Internet giant Google (GOOG.O) and pharmaceutical company Johnson & Johnson (JNJ.N) are also set to report results.
  2. how do the reporting sp500 companies benefit from a weaker dollar? if ibm made 1 billion in india and the dollar dropped 20% then ibm only made 800 million
  3. You mean if IBM made $1 Billion Rupees in India and then converted to USD the earnings would be higher after conversion?