CHICAGO (Reuters) - U.S. 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 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 U.S. 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.
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 percent, the sharpest drop in the sector. Energizer declined 1 percent, Colgate and P&G each slipped 0.4 percent and Kimberly-Clark skidded 0.1 percent.
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 percent of the Venezuelan market. That year, Venezuela’s overall market sales fell nearly 45 percent to just 270,000 vehicles.
Toyota Motor Corp sells some Tundra trucks in Venezuela and its Toyota Financial Services arm operates there, said Jim Lentz, U.S. 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 U.S.-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 percent and DuPont’s rose 0.9 percent.
Bill Pecoriello of Consumer Edge Research estimated that U.S. consumer products, food and beverage makers exposed to Venezuela could feel an average earnings decline of about 2 percent after accounting for currency effects.
His company estimated an earnings-per-share decline of about 6 percent for Avon, 4.7 percent for Colgate and 2.7 percent for Energizer, and smaller declines for other companies in the sector.
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 percent 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 percent of its revenue and 11 percent 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 to $2.82 per share, and said it included a preliminary estimate of the impact of the Venezuelan currency devaluation.
Reporting by Jessica Wohl; Additional reporting from Caracas, Ernest Scheyder in New York, and David Bailey and Bernie Woodall in Detroit; editing by John Wallace, Toni Reinhold, Tim Dobbyn