Venezuela devaluation hits U.S., European companies

Mon Feb 11, 2013 4:42pm EST
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By Jessica Wohl

CHICAGO (Reuters) - Venezuela's latest currency devaluation will hurt a range of U.S. and European companies that sell to consumers in the country, as state-imposed price controls make it more difficult for those companies to protect their profits.

On Friday Venezuela devalued the bolivar by 32 percent, its fifth such move in a decade. For U.S. companies that do substantial business in the country, such as Colgate-Palmolive Co (CL.N: Quote), Avon Products Inc (AVP.N: Quote), Procter & Gamble Co (PG.N: Quote) and Kimberly-Clark Corp (KMB.N: Quote), that means their earnings in bolivars are now worth less when converted back to dollars.

Colgate-Palmolive warned on Monday it would take a one-time charge of $120 million in the first quarter to re-measure its balance sheet at the new rate. Its shares were flat on Monday after falling 1.5 percent on Friday.

Irish packaging group Smurfit Kappa (SKG.I: Quote), which just last week reported its second-best profit in the last five years, said it would lower its net asset value to 142 million euros as a result of the bolivar devaluation. Smurfit shares fell 2.71 percent.

Edenred (EDEN.PA: Quote), the French company that makes vouchers and pre-paid cards, said the devaluation would cut earnings before interest and tax by more than 2 percent. Its shares fell 1.

Analysts said this latest devaluation could hurt companies more than previous moves because the prices of thousands of products, ranging from bottled water and meat to soap, deodorant and toothpaste, were capped under a 2011 Venezuelan law meant to fight inflation. The law calls for periodic revisions, nominally yearly, but which were avoided in 2012.

"The impact of currency devaluation in Venezuela has historically been partly offset by price increases, which may take longer to realize with Friday's devaluation given price controls implemented by the government to regulate corresponding pricing actions," Stifel analyst Mark Astrachan said in a note.

Colgate, best known for its namesake toothpaste, makes more of the staple-type goods subject to price controls than many other companies. It warned the revaluation would cut earnings by as much as 7 cents per share per quarter. BMO Capital Markets analyst Connie Maneaty said the move could slice forecast 2013 earnings per share growth in half, to 5 percent over 2012.   Continued...

A cashier counts notes at a supermarket in Caracas February 8, 2013. REUTERS/Jorge Silva