Weak dollar means higher profits from sales in Europe
The dollar hit a new low against the euro last week.
NEW YORK (AP) -- American company Tupperware Corp. is rooting for the dollar to stay weak, while Irish crystal maker Waterford Wedgwood PLC wants the opposite. The reasons why show how the dollar's fall to a record low against the euro boosts some companies but bruises others.
Orlando, Fla.-based Tupperware, best known for its snap-top plastic food containers, gets almost half its sales from Europe. When that revenue is converted back to dollars, it translates into higher reported profits, as rich euros buy an ever-increasing number of dollars. In the most recent quarter, the currency effect accounted for almost 30 percent of the company's $18.6 million net income.
Waterford Wedgwood, which makes Waterford crystal and Wedgwood china, depends on the United States for about half its sales. But with each dollar it brings home to Dublin, Ireland now worth only about 77 euro cents, the company has been forced to slash costs at its factories to stay competitive.
The dollar hit a new low against the euro last week and has lost 10 percent of its value against the currencies of the United States' major trading partners since Mid-May, figures from the Federal Reserve show. The euro, launched in 1999 as the common currency for Germany, France and 10 other European nations, is on a tear, up 57 percent since October 2000.
Some analysts think the dollar's decline is being engineered -- or at least blessed -- by the Bush administration, which wants to help U.S. companies boost overseas sales. If so, it may be working: The Commerce Department reported Wednesday that exports of goods and services grew 0.8 percent to a record $97.5 billion in September. Even so, the overall U.S. trade deficit topped the $50 billion mark for the fourth consecutive month.
Inflation risk
The dollar's decline carries the risk of sparking inflation as foreign goods become increasingly expensive.
At the current rate, the United States has to attract $5 billion of working capital every day to finance the current account deficit and American investments abroad, said C. Fred Bergsten, director of the Institute for International Economics in Washington. The current account deficit is made up mostly of the country's trade debt, but also includes foreign aid and money immigrants send home.
That's why Bergsten's predicting further declines. "Everyone in the market knows the dollar has to come down a lot," he said. "People are starting to run for the exits."
For now, the benefits of a cheaper dollar are mostly a positive for such mainstay American companies as International Business Machine Corp., Amazon.com Inc., Levi Strauss & amp; Co. and Estee Lauder Companies Inc. whose overseas sales help boost their earnings in dollar terms.
American "goods become cheaper abroad, so you can sell more goods abroad," said Jay Bryson, a global economist at Wachovia Corp.
Europeans hate it
By contrast, European companies that sell goods and services in the U.S. hate the weak dollar, because every time they exchange their hard-earned dollars for euros, they lose money.
Companies like French media telecommunications giant Vivendi SA, Finland-based sports equipment maker Amer Group PLC, German sporting goods maker Adidas-Salomon AG and Finland's Nokia OYJ, the world's largest mobile phone maker, are among the companies that have recently reported earnings or sales shrunken by the strong euro.
It now takes about $1.29 to buy one euro. If that rises to $1.35, it could seriously dampen exports and growth in Germany, Europe's largest economy, said Stefan Bielmeier, senior economist at Deutsche Bank Global Market Research. Every 10 percent rise in the euro trims 0.2 percentage point off annual growth, he estimated.
High-end German car manufacturer Porsche AG, which sells 40 percent of its vehicles in North America, suffered painful losses the last time the dollar dropped, so it has bought currency futures to lock in exchange rates for the next three years.
"We don't want to repeat the history from these years," said Immo Dehnert, Porsche's investor relations manager. "Three years give you a good possibility to react. You cut your costs, discover new markets, develop new products or try to change some things in the company so that you can live with a weaker dollar."
Derivatives
American companies like 3M Co. also buy financial derivatives to protect against dramatic currency swings. Despite that, currency exchange boosted 3M Co.'s European sales by 7.5 percent in the most recent quarter and increased its operating income by $52 million, or 23 percent.
"Because the company derives more than half of its revenues from outside the United States, its ability to realize projected growth rates in sales and net earnings could be adversely affected if the U.S. dollar strengthens significantly against foreign currencies," 3M said in its last quarterly report.
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