In typical fashion Johnson & Johnson announced that they have once again beat analyst consensus earnings estimates. Their quarterly earnings came in at $1.26/share, 6 cents above analyst estimates of $1.20/share. However, their two major businesses, pharmaceuticals and medical devices, would have experienced declines had it not been for the weak American dollar.
The recent increase in earnings due to currency is viewed as a negative by many analysts however, as an investor it helps to reaffirm one aspect of my investing strategy. One of the criteria that I used to select the U.S names in my portfolio is their international exposure. Over a year ago when I first initiated a position in JNJ I stated that one of the reason that I bought was that 44% of their sales were from outside of North America which would act as a built-in currency hedge. It works like this: JNJ reports their earnings in U.S dollars so the 44% of their revenue that was generated outside of the U.S. has to be converted back to American dollars for accounting purposes. This of course would inflate their international earnings as the U.S dollar falls and conversely shrink them as the U.S dollar rises.