As dollar drops, Coke's profits rise

WASHINGTON — The U.S. dollar might not stretch as far as it used to, but it's not all a grim picture.

At least not for many U.S.-based multinational corporations, including the world's largest beverage company, Atlanta-based Coca-Cola Co. Coke has reported a bump in profits, substantial portions of which are attributed to the weaker greenback and other factors related to foreign exchange rates.

"It has been a beautiful time for Coke," said Jeff Rosensweig, a professor at Emory University's Goizueta Business School.

Despite recent gains, the dollar has lost about 3.4 percent of its value against the euro since January 2008. Against the Japanese yen, the dollar depreciated by about 1 percent for the first seven months of 2008 before recovering in August.

Though the weaker greenback has been bad news for consumers forced to pay higher prices for imported goods, Coke is one of many U.S.-based multinational corporations seeing gains.

But unlike those that have profited by selling goods cheaper abroad, Coke's windfall from foreign exchange rates has not been driven by exports, as seen most recently with auto manufacturers.

In many ways, Coke's vast international markets have helped pave the way for bigger earnings with a weaker dollar. Although the company signifies all that is Americana, most of its products are manufactured and sold outside the United States through a network of about 300 bottling partners worldwide with exclusive rights. Coke does business with about 50 types of currencies and operates in more than 200 countries.

And when international sales are converted to the weaker U.S. dollar, the company has gained considerably.

"Due to our global operations, weaknesses in currencies of some of these countries are often offset by strengths in others," said Coke spokesman Dana Bolden in an e-mail.

In its second quarter that ended in June, Coke reported a 20 percent increase in operating income - slightly more than half of which, 11 percent, was attributed to exchange rates including the weaker dollar. The increase was also driven by concentrate sales and structural changes within the company, such as the sale of a bottling plant in Brazil.

The company also reported gains due to currency during the first quarter of 2008 that ended in March, as well as all four of its quarterly reports for 2007.

Industry analysts from Lehman Brothers listed Coke at the top of their list of beverage companies that could see some of the biggest gains in 2008 from the weaker dollar, particularly in Japan and the 15-nation euro zone, where the company has earned substantial profits and where currencies have stacked higher against than the dollar, according to a March 2008 report.

Economists say while the recent and projected bumps in the greenback against the euro, the yen and other currencies are worth noting, it will take much more before the dollar heads toward a serious recovery. As such, Coke will likely continue gaining from the weak dollar.

"If things continue the way they are we don't expect significant strengthening of the dollar in the foreseeable future," said Michael Brandl, professor at the University of Texas in Austin.

Brandl, a growth economist at the McComb Business School, said several factors are putting downward pressure on the dollar. For one, the nation's government deficit, which the White House recently projected to reach a record $482 billion for the 2009 fiscal year. The strength of the dollar also depends on household savings, narrowing the nation's trade deficit as well as interest rates.

At Coke, being a global company has allowed it to distribute risks involved in doing business throughout the world. And it's earnings reflect the company's strong business model, said Rosensweig of Emory University.

"They're among the most valuable brands in the world," he said.

Nin-Hai Tseng is a Washington correspondent for Cox Newspapers.