For Exporters, It's Follow The Bouncing Buck

The dollar's slide against the yen and the mark may have ignited panic in Tokyo and Bonn, but it's sparking profits for U.S. business. Even before the dollar hit its recent low of 79 yen, U.S. companies with operations abroad were posting big first-quarter gains as their sales in foreign currency translated into more dollars back home. Furthermore, since the buck's latest drop is just beginning to boost export sales, profits--especially for exporters of capital goods and equipment--are likely to get a second currency kick.

Don't expect all exporters to benefit equally, though. The dollar's recent fluctuations have been uneven. It's down sharply against the yen and mark, but it has lost little against the Canadian dollar and has risen against the Mexican peso. Measured against all currencies weighted by trade volumes, the dollar is virtually unchanged. "The dollar doesn't benefit companies in some areas of the world, but does double duty in others," says John E. Silvia, chief economist of Kemper Financial Services Inc. in Chicago.

STRONG EDGE. Right now, the worst market for U.S. companies may be Mexico. January's crisis pushed the peso down sharply and sent Mexico into recession. While the peso has come back from its lows, U.S. offerings still look pricey to cash- and credit-strapped Mexicans. To the north, the Canadian economy is softening, weakening prospects for U.S. sales.

Asia may offer brighter opportunities for U.S. exporters. Growth in South Korea, China, and Southeast Asia promises to remain rapid. In many countries, such as Hong Kong, Taiwan, and Malaysia, currencies closely track the dollar. That gives U.S. companies a strong edge against Japanese competitors hobbled by endaka--the strong yen. A U.S. firm exporting to Hong Kong, for example, can undercut a Japanese competitor's price by 15.5%, thanks just to exchange-rate changes since the start of the year. The weak dollar may even help U.S. companies penetrate the Japanese market. Such high-tech exporters as Intel, Compaq, and Apple could benefit from increased Asian sales.

U.S. companies may also find stronger sales in Europe, where economies are recovering from a long downturn. Local manufacturers may not be able to match the prices of U.S. rivals. For example, the prices of German goods elsewhere in Europe are rising as the mark advances against other European currencies. Who could benefit? Kemper Financial projects smart earnings gains for General Electric Co. and Emerson Electric Co. Such manufacturers usually do well at the start of an economic upturn.

PRICE SQUEEZE? The broader question about the dollar's impact on profits is whether U.S. manufacturers can keep up with rising export demand. Many export-oriented industries--machine tools, instruments, auto parts, and construction and data-processing equipment--are running at close to full capacity, and unfilled orders for capital goods are up 22% over a year ago. The squeeze could put upward pressure on prices both at home and abroad. But the U.S. slowdown now underway may eventually ease the pressure. "If we can redirect production from domestic sales to exports, prices won't be a problem," says L. Douglas Lee, chief economist of NatWest Washington Analysis. The dollar's drop may prove to be the profit windfall Corporate America is counting on.

Before it's here, it's on the Bloomberg Terminal.