Pfizer's Profit Secret: Lower Taxes, Weaker Dollar

The only way a business can boost profit on lower sales is by cutting costs. Usually they do so by slashing jobs. For its most recent quarter, Pfizer (PFE), the nation's biggest drug company, pulled off the higher profit/lower sales trick thanks partly to a drop in its tax rate.

This is probably not the best time for a major corporation to tout the fact that it's sending less money to Uncle Sam. Not when the U.S. narrowly averted a financial crisis on a debt-ceiling agreement that precludes higher taxes on the richest Americans.

Or General Electric (GE) reportedly paid no taxes last year.

Or Apple (AAPL) is under siege for allegedly dodging taxes, like so many firms with foreign operations.

Pfizer, for its part, said its effective tax rate fell to about 29 percent in the second quarter from roughly 32 percent a year ago. But before we pile on the company that brought us everything from Accupril to Zyvox, note that Pfizer's taxes dropped because of a break given to companies that engage in research and development.

True, R&D is a core cost for any pharmaceutical company. Inventing drugs is what they do. Getting a tax break for doing what you're supposed to be doing may seem like a rip-off for taxpayers, but encouraging companies to invest in R&D is a probably a wise policy. R&D is critical to long-term economic health. Innovation is good.

More important, the real story in the Pfizer numbers is the same one we've been seeing from most companies with far-flung operations this earnings season: The incredible shrinking dollar is what really helped save Pfizer's bottom line.

The company's total revenue fell 1 percent, but take out the effect of a weaker dollar and it would have been much worse. Foreign exchange propped up sales by fully 4 percent, Pfizer said. Broken out geographically, U.S. revenue dropped 9 percent. International revenue, however, rose 5 percent -- helped mostly by a much weaker dollar.

The incredible shrinking dollar is great for companies with overseas sales, but it's killing regular folks trying to save up money here at home. Have you seen what banks pay on CDs lately? Lower corporate tax rates might make you mad, but if you're a saver, well, you've got outrage to spare.

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