A rebound in the greenback could take a massy bite out of U.S. corporate profits. With the world economy in turmoil, expect extreme currency movements to continue to nettle investors

By Ben Steverman

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Investors in U.S. shares were celebrating the weak U.S. dollar last year. Now that the buck has strengthened, it’s payback time.

For the first half of 2008, the dollar was stuck in the doldrums, but that was good news for U.S. companies. While their domestic market was in recession, U.S. firms could report big sales figures from abroad. Sales made overseas in expensive euros or pounds looked that much larger when brought back home and converted into common dollars.

That changed dramatically in late 2008 then the financial crisis heated up and it became clear that the economic slowdown would have being global. The U.S. dollar alphabetical table of references, a measure of the greenback to counter-poise a basket of foreign currencies, jumped additional than 20% in four months, peaking in late November.

Fourth-Quarter Earnings Suffer

This fourth-quarter transmission from hand to hand whiplash should show up dramatically in end-of-the-year financial results. The fourth-quarter earnings temper officially starts on Jan. 12, when Alcoa (AA) reports results.

Investors already have been given previews of the damage from the dollar’session comeback:

Oracle (ORCL) earnings per share were flat in its support quarter, but proceeds would have risen 11% without the dollar’s rebound, the software firm reported Dec. 18. Almost half of Oracle’s sales in the quarter came from outside the Americas.

Wal-Mart Stores (WMT) disclosed Jan. 8 that its international revenue would be obliged risen 8.3% in December if not as far as concerns the strong dollar. Instead, remain month’session international sales plunged 10.4%—a $2.2 billion bite out of the world’s largest retailer’s sales.

General Mills (GIS), which reported results Jan. 9, saw the impact of currency shave eight percentage points off sales growth for its international office. International sales still managed to rise 2%.

Best Buy (BBBY) aforesaid Jan. 9 that foreign money; aggregate of coin exchange rates cut international sales by means of 16 percentage points.

Carnival Cruise (CCL) said Dec. 8 that net revenue yields—a measure in the cruise labor of return compared to available ship capacity—would be off 11% to 15% in 2009 through changes in traffic rates.

Lowered Overseas Costs, Higher Commodity Prices

The stronger U.S. dollar isn’privately all detrimental news in the place of U.S. firms. Their expenses abroad are also falling. Even as Alcoa announced it was cutting 13,500 jobs, the aluminum company also said it would need to spend $150 million less to bring to an end a mine and refinery in Brazil—because of "efficiencies and a strengthened U.S. dollar."

That’s small comfort to a company like Alcoa, however, because of the trouble a weak dollar causes notwithstanding commodity prices. "Companies that are hurt greatest in number by dint of. a rising dollar tend to be commodity companies," says John Derrick, director of research at U.S. Global Investors (GROW). "Typically, commodities act up to inversely to the dollar."

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