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.

Cereal maker Kellogg's k international sales rose 13% in the period, almost double its 7% increase in North America.

Caterpillar cat CEO Jim Owens said "spectacular" results abroad, where sales rose 27%, helped offset a sharp 10% sales plunge closer to 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.

For Caterpillar, the falling dollar was responsible for $198 million of its $11.4 billion in sales. At Marriottmar, revenue-per-room rose 15.5% at its non-U.S. hotels, almost three times as fast as the increase for its domestic properties. Business was particularly good in Dubai and at other locations along the Red Sea.

But the international figure would have dropped to 9.6% if the dollar hadn't declined.

To capitalize on foreign markets, investors should concentrate on U.S. multinationals, says Richard Bernstein, chief investment strategist at Merrill Lynch.

Buying shares in American companies with global reach can be less expensive than investing in emerging markets. The white-hot Shanghai market trades at a price-earnings ratio of 43, vs. 15 for toymaker Mattel mat or 9.8 for General Motorsgm.