“The weakening of the almighty dollar is rippling through financial statements of a host of American and European companies, boosting the bottom line for some while punishing others,” writes Thomas Sims in today’s Wall Street Journal.

“On a trade-weighted basis, the U.S. dollar is down about 13% against a basket of key foreign currencies since its recent peak in February 2002. But the dollar’s descent has been especially steep against Europe’s four-year-old currency, the euro. On foreign-exchange markets, the euro is up 32% against the dollar from its all-time low and up 15% compared with last year’s average.”

“The impact of these changes was evident in a string of earnings reports released recently that have cited the weaker dollar and stronger euro as a source of strength for U.S. companies and a hit to earnings for European companies.”

“At International Business Machines Corp., for example, revenue shot up 11% during the first quarter, in part because of currency gains. Excluding those gains, revenue rose 4%. At Colgate Palmolive Co., meanwhile, favorable exchange rates accounted for more than two-thirds of the company’s 20% increase in dollar sales in Europe.”

“Even Microsoft Corp. has gotten a kick. Had exchange rates from a year ago been in place during the most recent quarter, the company said, revenue in Europe, the Middle East and Africa would have only risen 1% instead of the reported 12% increase. Other U.S. companies that have noted benefits from a weaker dollar include Nike Corp. and Cooper Tire & Rubber Co.”

“The weaker dollar helps U.S. businesses in several critical ways. First, it makes U.S. products cheaper overseas, which is crucial considering that 26% of U.S. corporate profits come from overseas operations, according to Prudential Securities. Second, a weaker dollar makes it harder for foreign companies to compete on U.S. soil, giving U.S. companies more power to raise prices at home. And most immediately, companies that sell goods overseas can book instant gains when they convert foreign currencies back into dollars. A company that sells a car priced in euros, for example, benefits because those euros are worth more in dollar terms than they were a year ago, boosting results once they are converted back into dollars.”

“In Europe, Volkswagen AG, Benetton Group SpA and Akzo Nobel NV were only a few of the companies that recently blamed a stronger euro and weaker dollar for eating away at earnings.”

“Soon after its birth in 1999, the euro plummeted against most major currencies, giving European companies a competitive edge. One beneficiary of the windfall profit was UPM-Kymmene. The Finnish paper company, which generates about a third of its revenue outside the European Union, posted a 23% rise in annual profit for 2000, when the euro was at its weakest.”