How the Strong Dollar Affects Earnings: 17 Winners and Losers

NEW YORK (TheStreet) -- The stronger U.S. dollar is likely to have a significant impact on third-quarter earnings, which companies began reporting this week.

"A stronger dollar will drive earnings revisions simply from the fact that you have translation impacts," explained Steven Klopukh, CFA, senior portfolio manager and CIO of mid-cap equities with Allianz Global. "It's a good, first approximation to say, 'Okay where is that risk off the table for some of these companies?'"

U.S.-based multinationals, which derive much of their sales from outside of the country, will see a hit when converting those sales back into dollars. By comparison, companies that import raw materials from overseas will see an advantage, even with the tariffs.

"If the dollar strengthens by 20% or 30% against the foreign currency, it could more than offset the tariff associated with importing a lot of that steel, for instance," said Eric Marshall, CFA, portfolio manager for Hodges Funds in Dallas, Texas.

Of course, a lot of factors go into a company's financial performance during the quarter. But if you just look at the effect of the stronger dollar, there are some clear winners and losers. Click ahead to see how 17 different companies are likely to fare.

The Cheesecake Factory (CAKE)

Winner: This restaurant group is heavily U.S.-focused, so earnings should hold up. "Better in fact, compared with its peers," says Steven Klopukh, CFA, senior portfolio manager and CIO of mid-cap equities at Allianz Global. He explains that The Cheesecake Factory is "more of a discretionary purchase," so as consumers continue to benefit from lower fuel prices due to the stronger dollar, this business could be a particularly big beneficiary of the dollar's strength.

G-III Apparel (GIII)

Winner: As an apparel manufacturer, the company produces a lot of product outside of the U.S., which should lower the company's costs as it imports goods that are manufactured overseas back to the U.S. "Its costs will come down and its margins should improve," said Eric Marshall, a portfolio manager for Hodges Funds in Dallas.

Chipotle Mexican Grill (CMG)

Winner: Chipotle is almost entirely in the U.S.. Thus, it basically suffers no impact from the appreciating dollar and its risk profile is going to be lower than the average S&P 500 company's, said Klopukh.

Intel (INTC)

Winner: Intel, like many of the chip companies, should benefit from manufacturing outside of the U.S. "Their costs will come down in dollar terms due to the stronger dollar," Marshall explains.

Panera Bread ( pnra)

Winner: The bakery-cafe chain is heavily U.S.-concentrated and therefore should hold up better relative to the average S&P company in the face of a stronger dollar, said Klopukh.

Texas Instruments (TXN)

Winners: "Like Intel, manufacturing outside the U.S. should lower costs for Texas Instruments and Diodes (DIOD) " said Marshall.

Concho Resources (CXO)

Loser: One of the exceptions to the higher dollar's ability to bolster U.S.-centric companies is domestic oil producers. Domestic producers such as Concho are typically higher-cost producers too, and will feel the pinch of lower oil prices first.  

"Even though Concho hedges oil prices, it still could have a negative feedback," said Klopukh. "They're U.S.-centric but they operate in a global market. They're based in the U.S. and they'll probably stay in the U.S., but oil is priced off of Brent and WTI, which are the global benchmarks. There are implications there."

If oil prices remain weak in the next six to 12 months as a result of a strong dollar as well as a higher supply of oil but lower global demand, that should feed back into Concho's ability to realize certain prices for oil and hurt its ability to grow production at stated goals.

The Coca-Cola Company (KO)

Loser: Coca-Cola generates a lot of sales and profits overseas, which could be a headwind to profits and sales as they're translated back into dollars," said Marshall.

Pioneer Natural Resources (PXD)

Loser: Like Concho, Pioneer is a high-growth name, but there are risks surrounding its ability to hedge and reach production growth goals in a lower commodity environment largely weighed down by a higher U.S. dollar, Klopukh noted.

McDonald's (MCD)

Loser: It's a large, multinational corporation with significant profits and sales generated outside the U.S. The company could see headwinds as those sales and profits are translated back into dollars, commented Marshall.

Kohl's (KSS)

Winner: Kohl's being 100% U.S. should experience the advantages of a strengthening dollar. "They've actually been struggling a little bit because apparel spending has been weak, but, again, they should benefit just from lower oil prices giving consumers a bit more buying power," said Klopukh.

The stronger dollar also creates more purchasing power for Kohl's as the department store company sources materials from China and Southeast Asia. "They should be able to pass along some of that buying power to consumers in the form of lower prices," he said. "They could benefit from just better sourcing costs."

U.S. Steel (X)

Loser: As a domestic manufacturer of steel, U.S. Steel could see pricing pressure for its domestically-produced steel from cheaper imports from abroad, said Marshall.

Macy's (M)

Winner: "Macy's is pretty much all U.S. and should be a better beneficiary of the U.S. dollar from better sourcing overseas," Klopukh explained.

The fund manager also said that Macy's, along with the rest of the retail industry, should benefit from the recent 20% year-over-year drop in cotton prices.

Caterpillar (CAT)

Loser: A strong dollar could become a headwind to Caterpillar. The strength of the currency makes it more expensive for foreign buyers to purchase the manufacturer's heavy equipment outside the U.S. and renders the company less competitive against foreign-made equipment, said Marshall.

JetBlue (JBLU)

Winner: "JetBlue is a good one because it has almost all U.S. exposure for leisure travelling to the Caribbean, that should benefit from the U.S. consumer who's feeling a bit wealthier because of lower fuel prices," said Klopukh.

The stronger dollar's suppression of fuel prices of course, is also a big input cost buster for the airline.

"For airlines, it's all about input costs, especially with the airline industry now more price-disciplined following years of consolidation," added Klopukh added. Assuming that the U.S. economic remains steady, airlines including JetBlue should see a benefit to margins and profits, according to the money manager.

Southwest Airlines (LUV)

Winner: "Southwest caters a lot more to business travel and the fact that the U.S. economy remains on solid footing means Southwest should continue to benefit from lower oil prices and a higher U.S. dollar and being 100% domestic," said Klopukh.

-- By Andrea Tse in New York

Follow @AndreaTTse

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