Chicago: US companies doing substantial business in Venezuela, such as Avon Products Inc and Colgate-Palmolive Co, are bracing for the impact from the country's currency devaluation.
Venezuela is largely dependent on imports for consumer goods and the devaluation means many products will cost more for consumers. Sales and profits for foreign companies are expected to slip.
Devaluation of the bolivar announced late on Friday by President Hugo Chavez triggered a shopping spree in the capital city Caracas, as people tried to beat price increases.
Items classified as nonessential now have an exchange rate of 4.3 bolivars (Dh0.0073) per dollar, up from 2.15 and compared with a new rate of 2.6 for essential imports such as food and medicine.
That means companies that had been converting results from Venezuela into US dollars at the official exchange rate of 2.15 must now convert at the new rate of 4.3 if the goods are deemed nonessential.
BMO analyst Connie Maneaty downgraded the whole personal and household products sector she covers, and Procter & Gamble Co in particular, to "market perform" from "outperform" on Monday. She had downgraded Avon, Colgate and Kimberly-Clark Corp in early December over concerns about a potential devaluation.
Price targets
Maneaty also cut earnings estimates for companies doing business in Venezuela such as Avon, Colgate and Energizer Holdings Inc, and cut price targets on shares of those three companies.
Avon shares fell 1.7 per cent, the sharpest drop in the sector. Energizer declined 1 per cent, Colgate and P&G each slipped 0.4 per cent and Kimberly-Clark skidded 0.1 per cent.
Two major automakers said they had minimal exposure.
"We are assessing the situation," Ford Motor Co Chief Financial Officer Lewis Booth said on the sidelines of the North American International Auto Show in Detroit, adding that every market is important to Ford.
In 2008, Ford brand cars and trucks had about 15.7 per cent of the Venezuelan market. That year, Venezuela's overall market sales fell nearly 45 per cent to just 270,000 vehicles.
Toyota Motor Corp sells some Tundra trucks in Venezuela and its Toyota Financial Service arm operates there, said Jim Lentz, US president and chief operating officer. The country accounts for "very small numbers", with maybe 200 Tundra trucks sold in 2009, he added.
Dow Chemical, the largest US-based chemical manufacturer, said the devaluation was "not material" for its business. DuPont's Pioneer unit declined to say specifically how the Venezuelan devaluation would affect its results, calling Venezuela a small, but important, market.
Dow's shares fell 1.3 per cent and DuPont's rose 0.9 per cent.
Bill Pecoriello of Consumer Edge Research estimated that US consumer products, food and beverage makers exposed to Venezuela could feel an average earnings decline of about 2 per cent after accounting for currency effects.
His company estimated an earnings-per-share decline of about 6 per cent for Avon, 4.7 per cent for Colgate and 2.7 per cent for Energizer, and smaller declines for other companies in the sector.
Negative impact
Colgate said on Monday that it expects to record a one-time gain in the first quarter of about 12 cents per share, and charges of about 4 cents to 6 cents per share in each of the quarters of the year, related to the devaluation.
Venezuela accounts for about 6 per cent of Colgate's sales, according to analysts.
P&G, the world's largest maker of household products, derives a greater amount of sales from Venezuela than its peers, but those sales account for a smaller, undisclosed percentage of its total sales.
In October, Avon said Venezuela accounted for about 5 per cent of its revenue and 11 per cent of operating profit during the first nine months of 2009. At that time, it said its earnings would be "negatively impacted" if Venezuela's currency was devalued and inflation rose.
Spokeswomen for Avon and P&G said their companies were reviewing the situation. Kimberly-Clark declined to comment and Energizer could not be reached.
H.J. Heinz Co on Monday reaffirmed its fiscal 2010 earnings outlook of $2.72 (Dh9.98) to $2.82 per share, and said it included a preliminary estimate of the impact of the Venezuelan currency devaluation.
- 45%: fall in overall vehicle sales in 2008
- 270,000: vehicles sold in 2008
- 200: Tundra trucks sold in 2008
