Weak dollar helps earnings, but little hiring yet
SEATTLE (Reuters) - A rapidly declining dollar is helping U.S. companies sell drugs, chemicals, food and other goods to buyers in other countries, but slow growth at home is holding back expansion and new hiring.
The U.S. dollar has fallen about 16 percent against a range of currencies over the past year .DXY and hit a three-year low on Thursday, weakened by low interest rates and worries about a credit rating downgrade.
"Any U.S. multinational corporation is going to benefit from a weaker dollar, which frankly is what has jump-started the recovery," said Michael Yoshikami, chief executive at fund management firm YCMNET Advisors.
"The problem is that on a fundamental basis, there isn't a real driver for massive re-employment."
The dollar's weakness helped a swathe of companies in the first three months of the year and may have an even greater impact in coming quarters.
Restaurant chain McDonald's Corp (MCD.N), which gets almost two-thirds of its revenue from overseas, said on Thursday it expected currency exchange rates to boost full-year earnings by 15 to 17 cents per share. That would work out to a boost of about 3 percent, based on the average analyst forecast.
Rival Yum Brands Inc (YUM.N), parent of the KFC, Taco Bell and Pizza Hut fast-food chains, said on Wednesday foreign currency from its international and China divisions boosted earnings per share by 2 percent.
The weak dollar also helped chemical giant DuPont (DD.N), accounting for 1 cent of its earnings per share of $1.52.
"We're seeing that sort of tailwind continue for the rest of this year," Chief Financial Officer Nick Fanandakis said on a conference call on Thursday.
Employment services company Manpower Inc (MAN.N), which gets most of its sales and profit outside the United States, which also reported on Thursday, said it expected sales growth in Europe to outpace revenue growth in the Americas, and that a weak U.S. dollar would add about 10 percent to second-quarter earnings per share.
Earlier in the week, big U.S. drug makers raised their forecasts for the year based on favorable exchange rates.
Eli Lilly & Co (LLY.N), which previously had expected little or no sales growth in 2011, said the weakening dollar should enable revenue to increase at a low single-digit percentage rate. Johnson & Johnson (JNJ.N) also lifted its full-year profit forecast.
JPMorgan analyst Chris Schott said the weak dollar should prop up the drugmakers for the remainder of the year.
"The real push down on the dollar isn't being reflected in earnings quite yet," said Yoshikami. "I think you'll start to see it next quarter if the dollar remains weak."
The dollar's slide did not meaningfully affect General Electric Co's (GE.N) first-quarter finances, said Keith Sherin, chief financial officer at the largest U.S. conglomerate.
As a major exporter, however, he welcomed it: "We have a lot of revenues and costs outside the U.S. We're a net exporter, we like a weaker dollar," he said on Thursday.
But with much growth coming from overseas markets, improved earnings so far do not seem to be translating into new U.S. jobs and investment. Some companies say they plan to hire this year, but layoffs are still seen as a quick way to cut costs.
Wells Fargo & Co (WFC.N), for example, plans to cut 4,500 jobs as its mortgage lending business slows.
Cooling systems maker Ingersoll-Rand Plc (IR.N), said it is hiring in growth regions such as India and China rather than in the United States, where it is focusing on productivity gains.
"Wherever the demand is, that's where we're going to be adding headcount," said CEO Mike Lamach. "We're trying to remain cautious (in terms of hiring). I would not expect to put headcount back proportional to revenue growth."
And oil industry executives say U.S. jobs are being sent overseas because of a slowdown in domestic drilling.
"That's one of the things that frustrates me so much about the slowdown, the moratorium, the lack of permits, the lack of clarity in the Gulf of Mexico," said Larry Dickerson, CEO of Houston-based rig contractor Diamond Offshore Drilling Inc (DO.N), which pulled some rigs out of the Gulf of Mexico due to the drilling moratorium in the wake of the BP spill.
There are bright spots, though.
The two largest U.S. railroads plan to add workers to handle expected freight volume increases. Union Pacific Corp (UNP.N) said it would add 4,500 jobs this year, more than the 4,000 likely lost to attrition, though it will add fewer if the economy falters. CSX Corp (CSX.N) said it plans to increase headcount by 3 percent and bring back 200 furloughed workers.
Top North American miners of gold, copper and iron ore said last month they were facing a labor shortage as projects ramp up, and are looking to hire.
Internet giant Google Inc (GOOG.O) is bucking the trend with a hiring spree, as it looks to branch out from its core business and counter the emerging threat of Facebook.
Google said 2011 will be its biggest hiring year ever, taking on 2,000 in the first quarter alone and targeting more than 6,000 for the whole year.
Private equity and real estate giant Blackstone Group (BX.N) said its portfolio companies increased U.S. staff numbers by 7 percent last year.
"If the rest of the economy had done this, the country's economic problems would be over," Chief Operating Officer Tony James said on a conference call on Thursday.
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