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
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

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!