Weak dollar blows a strong profit tailwind

By Brad Dorfman

CHICAGO (Reuters) - The U.S. dollar is grinding steadily lower and Corporate America couldn't be happier.

The currency's slide is delivering a generous boost to sales and earnings for many U.S. companies, a trend most analysts see continuing through the year.

Those deriving the greatest benefit generate a significant portion of business beyond U.S. borders, where the weak greenback makes their goods cheaper to foreign buyers and profits generated in those markets are amplified when translated back into dollars.

"The weaker dollar is certainly helping the earnings of companies with international exposure," said Scott Wren, senior equity strategist at A.G. Edwards & Sons Inc. "The dollar decline so far has been pretty orderly - so that's fine as long as it stays orderly."

Coca-Cola Co. (KO.N) said on Tuesday that the weak dollar accounted for 3 percentage points, or nearly 16 percent, of its 19 percent revenue gain in the second quarter.

Drug and medical supplies maker Johnson & Johnson (JNJ.N) said currency rates accounted for 2.4 percentage points of its 13.2 percent sales increase for the second quarter -- more than 18 percent of the increase.

Toymaker Mattel Inc. (MAT.N) said currency accounted for 3 points of the 7-percent sales increase it saw in the quarter.

And diversified manufacturer Eaton Corp. (ETN.N) said currency accounted for half of the 4 percent sales increase it posted. On top of that, Eaton, which beat second-quarter earnings per share expectations by 23 cents, said 3 cents of that beat was due to currency.

At the end of the second quarter on June 30, the dollar was down 4 percent against a basket of major trading partner currencies .DXY compared with a year earlier.

The euro, for instance, recently reached a record high above $1.38 against the dollar, while the British pound has struck 26-year highs above $2. Only the Japanese yen JPY= has struggled to gain ground against the dollar.

The massive U.S. trade and budget deficits are seen as significant threats to the economy down the road, which has made some international investors wary of holding too many U.S. assets, hurting the dollar.

Also, the U.S. Federal Reserve has held benchmark interest rates unchanged since last June, while most other central banks have been raising rates. That diminishes the yield advantage that had benefited the dollar during the Fed's raising phase.

Most currency analysts predict the slide will continue through the year.

"Any company with any meaningful international exposure will show better than expected currency benefits," said J.P. Morgan analyst John Faucher, adding that PepsiCo Inc. (PEP.N), Procter & Gamble Co. (PG.N) and Colgate-Palmolive Co. (CL.N) would be three big beneficiaries.

WHERE THE GROWTH IS