Cleveland, April 24 (Bloomberg) -- At Dock 22 on Lake Erie, workers are loading 20,000 tons of steel coils onto the Federal St. Laurent, a ship that will carry the Cleveland port's first steel exports since 1994. The coils are part of $50 million in sales that International Steel Group Inc. said it has cinched with European manufacturers since mid-March. A 23 percent drop in the dollar against the euro over the past year has made U.S. goods from steel to auto parts and toys more affordable for overseas buyers. ``The dollar has been an important factor,'' said Mitch Hecht, chief financial officer of International Steel, formed last year from the assets of bankrupt mills in Cleveland, Chicago and Indiana. ``U.S. steel producers are now more competitive.''
International Business Machines Corp., 3M Co., Honeywell International Inc. and Eastman Kodak Co. are among dozens of U.S. exporters that also said the weak dollar helped to boost first- quarter sales. European rivals such as Nestle SA and Michelin & Cie. have seen sales decline. 3M, the maker of products such as Post-it Notes and Scotch tape, said favorable exchange rates accounted for 5.6 percentage points of an 11 percent revenue increase. Honeywell, the world's biggest maker of aircraft cockpit electronics, said sales would have been unchanged without a $200 million boost from currency gains that pushed its revenue up 4 percent to $5.4 billion. At IBM, the world's biggest computer company, the declining dollar swelled sales in its European business by 23 percent to $6.3 billion. They would have risen only 3 percent at constant exchange rates, the company said.
Saved From Loss
Kodak was saved from a first-quarter loss. The world's biggest maker of film said its earnings of 4 cents a share included a 12-cent currency benefit. When U.S. companies turn overseas sales into dollars, they're getting more of them than they did a year ago. ``The dollar is really a tailwind,'' said Rich Turgeon, director of research at KeyCorp's Victory Capital Management, who predicted that investors looking for sales growth in a sluggish market might bid up the stock of exporters such as 3M. It now takes about $1.09 to buy a euro, compared with as little as 82 cents in October 2000. The dollar also has declined against other major currencies, sliding 12 percent against a trade- weighted index in the past year.
Role Reversal
European companies benefited from the opposite effect during the late 1990s, as a strong dollar helped Nestle, Michelin, Royal Philips Electronics NV and other exporters gain market share in the U.S. Now many of them are hurting. Volkswagen AG has said it may have a second year of declining profit because of the euro's strength. Nestle, the world's largest food maker, blamed a 7.5 percent decline in first-quarter sales on the dollar. Michelin, Europe's largest tire maker, said the currency helped turn a 5 percent increase in quarterly sales into a 4.9 percent drop. Philips, Europe's largest maker of televisions, had a first- quarter net loss of 69 million euros ($74 million), while a 14 percent sales decline exceeded forecasts. Sales would have risen 5 percent without currency effects, the company said. The dollar's drop may have caught some companies by surprise, leaving them without enough forward-purchase agreements to protect their earnings from swings in exchange rates.
`It's Difficult'
Volkswagen has used such hedging contracts to cover 40 percent of its currency risks, toward the low end of a typical range of 30 percent to 60 percent, Bernd Pischetsrieder, the company's chief executive, said in an interview last month. Investors on Philips' earnings conference call questioned why the company had taken such a large currency hit. ``When the dollar is declining and keeps declining, it's difficult,'' Philips Chief Financial Officer Jan Hommen responded. In Asia, the weak dollar may restrain exporters such as Honda Motor Co. A dollar bought 118 yen at the end of the first quarter, down from 133 a year earlier. Each 1-yen movement costs Honda 20 billion yen in annual operating profit, according to J.P. Morgan Securities Asia. Analysts estimate Honda, which reports earnings tomorrow, had operating profit of 183 billion yen in the most recent quarter.
Not Low Enough
The dollar isn't low enough for some U.S. industry groups. It may decline another 15 percent and still be strong by historical standards, said Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers in Washington. The currencies that now make up the euro averaged $1.21 to the dollar in the 1990s, he said. Many investors say they don't expect the dollar to rebound any time soon. U.S. industrial production shrank in March, companies such as Sprint Corp. have lowered profit forecasts and there are few signs that employment will rise, making it unlikely U.S. interest rates will climb above their four-decade lows. That economic picture is the flip side of the coin for David Yucius, president of Atlanta-based Aurora Investment Counsel, which manages $120 million. A weak dollar signals a lagging economy that may have trouble financing its current account deficit, he said. Analysts estimate the U.S. needs $1.5 billion in foreign capital a day to cover that deficit, which measures the flow of investments in and out of the U.S. ``I'm not afraid of the dollar rising,'' Yucius said. ``I have more concern about the fundamental valuation relative to other currencies and the potential fallout.'' //www.bloomberg.com