Analysis: U.S. firms' blaming dollar for weak profits may be premature

Sun Aug 18, 2013 11:21am EDT
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By Caroline Valetkevitch

NEW YORK (Reuters) - U.S. companies' warnings that a stronger dollar could drag on profits in the second half of the year could prove overstated.

The dollar has lately been defying expectations of a rise, weakening at a time when the betting had been on strengthening as the U.S. economy outpaced other major regions.

If the weakness continues, the dollar could become a help instead of a hindrance for companies that rely heavily on selling goods and services abroad, particularly if Europe shows additional signs of improvement and China's pace of growth becomes stable.

A pick-up in overseas sales would be boon for U.S. multinationals, whose second-quarter results fell short for companies that derive more sales from the United States.

"A headwind that they're expecting in the multinationals might not be there," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

S&P 500 companies have made their complaints about the dollar loud and clear this earnings season.

Kimberly-Clark's (KMB.N: Quote) chairman referred to a "more negative currency environment" while Procter & Gamble (PG.N: Quote) pointed to dollar strengthening and DuPont (DD.N: Quote) cited increased headwinds for diminished results.

A Reuters analysis of about 250 S&P 500 companies found that one of four this quarter cited their competitive disadvantage in selling abroad when the dollar is strong.   Continued...

A customer counts her money while waiting in line to check out at a Target store in Torrington, Connecticut November 25, 2011. REUTERS/Jessica Rinaldi