As Procter & Gamble Co. battles stiff competition in a world economy emerging from recession, one thing working in the company’s favor in 2010 will be a weaker U.S. dollar.

That’s exactly the opposite of what it encountered through most of 2009. As a result of a relatively stronger dollar compared with 2008, its reported sales and profits through the first nine months of 2009 were reduced by billions of dollars.

In the July-September quarter, for example, foreign exchange reduced net sales by 7 percent as its top line slid from $21 billion to $19.8 billion, according to P&G’s latest quarterly financial report.

Spokesman Paul Fox in Cin­cinnati said the negative impact on sales in the fiscal year that ended in June was $4 billion. It also trimmed P&G’s profits by about $1 billion.

But based on a Federal Reserve index of the dollar’s value against a basket of foreign currencies, that situation reversed beginning in October. As result, the headline sales P&G reports in the coming months should get a lift.

Earnings Boost

A weaker dollar boosts the earnings of U.S. multinationals like P&G because they have to convert foreign sales into dollars for financial-reporting purposes. If a foreign currency that was worth $1 a year ago is now worth $1.20, that means reported sales would be 20 percent higher even if it sold the same number of goods at the same prices as a year earlier.

Based on the Fed’s index, the dollar has been falling since hitting a peak in March. Fearing a global economic meltdown, investors had been bailing out of foreign investments and buying dollar-based assets, which are regarded as safer. Since then, they’ve reacquired a taste for riskier foreign assets with possibly higher returns.

Even though the dollar has been falling for a while, though, year-over-year comparisons continued to depress P&G’s results because the dollar was particularly weak through mid-2008. So, through September, the foreign-exchange value of the dollar was stronger versus the same month in 2008, according to the Fed index. Then, beginning in October, this year’s falling dollar finally crossed paths with the strengthening trend that began in the fall of 2008. That bodes well for P&G.

P&G generates more than 60 percent of its sales outside the United States. It operates 105 plants in 43 foreign countries. Almost a third of its sales in fiscal 2009 came from developing markets, an area it has singled out for growth.

Lauren DeSanto, an analyst who follows P&G for Morningstar, said the effect of exchange rates is more than just an accounting convention. There are both translational and transactional effects.

“Last year was rough. It’s a real impact,” she said.

Currency rates can impact pricing and sales volumes, for example, particularly if foreign-based competitors do not have to grapple with the same foreign-exchange issues as P&G. Officials have said they expect to realize a positive impact on sales of between 1 percent and 2 percent in the fiscal year that ends in June. That compares with an overall negative impact of 4 percent in fiscal 2009.

“Usually it’s a boost to the top line, and then it flows through,” DeSanto said.

Jeroen van Leersum, an equity analyst at Johnson Investment Counsel in Monfort Heights, Ohio, who follows the consumer-products industry, said P&G historically has managed currency fluctuations well. Although it has to report the impact of exchange-rate movements quarterly, that doesn’t mean it actually moves the money to the United States or converts it to dollars, he said. It has pools of money all over the globe.

Organic Growth

Still, while net sales and profits will get a boost from a weaker dollar, the favorable currency impact might not do much for P&G’s stock price. Institutional investors own a lot of P&G stock, and they pay more attention to adjusted results that exclude the currency-exchange impact, van Leersum said.

“We care more about organic growth. The currency swings are never sustainable. It’s just one element. It’s certainly not a buy-or-sell element,” he said. “In the long term, these things don’t change the viability of the business.”

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Jon Newberry writes for the Business Courier of Cincinnati.