Venezuelan Currency Devaluation: 4 Companies to Watch: The Procter & Gamble Company (PG) and More

Page 1 of 2

Is it within the realm of possibility that Hugo Chavez is just a bit of a control freak? On Friday of last week, the colorful Venezuelan leader, currently undergoing treatment for cancer in Cuba, once again asserted his formidable command over the Venezuelan economy by remotely ordering a 32% devaluation of his country’s currency, the bolivar, against the U.S. dollar. This latest front in Chavez’s mercurial economic policy is partly intended to finance massive government debt spending incurred in the run-up to his reelection last year. It’s particularly vexing for multinationals that perennially attempt to crack the Venezuelan consumer market, despite the risks. Let’s take a look at the impact of the bolivar devaluation on four popular consumer-based companies with Venezuelan exposure:

The Procter & Gamble Company (NYSE:PG)

Colgate-Palmolive Company (NYSE:CL)
Colgate’s sales and earnings were already facing pressure from Venezuela in late 2012. Economic uncertainty coupled with a labor slowdown in the company’s local Venezuelan production facility shaved a full 1.5% off Colgate’s worldwide organic sales and 50 basis points off its worldwide gross margin in the fourth quarter. When pressed by analysts during its fourth-quarter 2012 earnings call on Jan. 31, CEO Ian Cook declined to quantify the impact of a then-potential bolivar devaluation. The company had projected double-digit earnings-per-share growth in 2013, and Cook was careful to stress that “the double digit in dollar terms of guidance was absent a macroeconomic devaluation in Venezuela.”Cook also stated that if devaluation occurred, Colgate would issue related guidance “swiftly.”

True to Cook’s word, on Monday of this week following the devaluation, Colgate issued a press release stating that the company would take balance-sheet-related charges of $0.25 per share in the first quarter on its Venezuelan domiciled assets, as well as between $0.05 to $0.07 in per-share earnings reductions for each quarter of 2013. All told, these charges equal roughly $0.50 per share. Taking into account Colgate’s $5.15 earnings per share in 2012, this single event may have just wiped out the company’s goal of double-digit 2013 EPS growth.

The Clorox Company (NYSE:CLX)
Give Clorox a gold star for dealing proactively with the prospect of a bolivar slide. On releasing second-quarter 2013 earnings on Feb. 4, Clorox had already factored in a range of $0.05 to $0.10 earnings impact in its forward guidance due to what it deemed a likely bolivar devaluation. Venezuela accounts for roughly 2% of Clorox’s sales, and the devaluation effects may hit the top of the projected impact range or slightly exceed it. Of course, Clorox and all companies operating in Venezuela have some exposure to potential further devaluation this year. Frontier Strategy Group, a consultancy that predicted the currency’s weakening to the exact percentage point of 32% four months ago, expects that the devaluation could continue this year to a total of 55% to 60%. All in all, though, shareholders should be pleased that Clorox is actively forecasting and absorbing the earnings impacts in real time. This will make it easier to evaluate the rest of Clorox’s global earnings each quarter in 2013.

The Procter & Gamble Company (NYSE:PG)
Similar to Colgate and Clorox, P&G held a recent earnings call before the Feb. 8 devaluation, on Jan. 25, when it released its second-quarter 2013 earnings. However, where its peers clearly saw the bolivar’s devaluation as a probable event, and discussed it at length on their earnings calls, P&G treated devaluation as more of a possibility; one among several documented business risks. In its quarterly SEC filing, besides an obligatory currency disclosure denoting Venezuela as a high-inflation economy, the company mentioned devaluation risk almost as if in passing. On the Jan. 25 earnings call, it was similarly only mentioned once.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!