Foreign markets hot for U.S. firms
— -- Thank God for foreigners. Amid a stop-and-go U.S. economy, foreign markets are keeping Corporate America afloat.
From heavy-equipment makers to hoteliers, U.S. multinationals reported better second-quarter financial results abroad than at home.
"A lot of these companies make profits not because the U.S. economy is doing well, but because of the global economy," says John Silvia, chief economist for Wachovia Bank.
Offshore profits have posted double-digit percentage gains for 20 consecutive quarters, says Joseph Quinlan, Bank of America's chief market strategist. "The cushion comes from overseas," he says.
Strong economies in Europe and Japan coupled with the effect on profits of the falling dollar fueled the rise in foreign results. Much of the world has outpaced the U.S. economy this year. The International Monetary Fund last week lowered its full-year forecast for U.S. economic growth — despite a surprisingly strong rebound in the second quarter — while raising its estimates for Europe and Japan. The IMF now projects the U.S. economy will expand at an annual rate of just 2% this year, vs. 2.6% in Europe and Japan.
Europe is key: More than half of U.S. companies' foreign profits originate there, Quinlan says. Example: Through the first half of the year, Harley-Davidson's sales of its big motorcycles rose 17.7% in Europe while falling 6% here at home.
The plunging dollar also has helped the bottom line by inflating profits earned in foreign markets, especially the euro zone. The dollar's pronounced decline against the European currency means every euro that a U.S. company earns becomes more valuable when converted back into dollars.
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