Potential currency risks for Cincinnati-based P&G include “a large post election devaluation of the Venezuelan bolivar,” Chief Financial Officer Jon R. Moeller said today on an earnings conference call.
Venezuela will weaken the official rate to 6.2 bolivars per dollar from 4.3 in the first quarter of 2013, according to the median estimate of 14 analysts surveyed by Bloomberg.
U.S. consumer goods companies including P&G and Colgate- Palmolive Co. may face a “significant hit” from a devaluation similar to one in January 2010, when President Hugo Chavez debased the bolivar for the first time in five years, Ali Dibadj, an analyst at Sanford C. Bernstein & Co., said in a phone interview from New York.
“Although the companies are starting to mention it more and more, it’s very much only an undertone and I don’t think it’s filtered through to the investing community that this is a real possibility,” Dibadj said. “If it happens there will be a similar amount of blindsidedness among investors in these companies.”
A spending binge by Chavez, 58, before the Oct. 7 election may double Venezuela’s deficit to 7.8 percent of gross domestic product by year-end, according to Bank of America Merrill Lynch estimates, deepening the need to devalue the currency to obtain more bolivars per dollar from oil exports.
A finance ministry official, who isn’t authorized to speak publicly because of government policy, declined to comment on the possibility of devaluing the currency after the election.
P&G Earnings Rally
P&G, the maker of Tide laundry detergent and Duracell batteries, rallied 3.2 percent to $65.55 a share at 1:50 p.m. in New York after reporting profit that beat estimates. The shares declined 4.8 percent this year through yesterday.
As part of currency controls installed by Chavez in 2003, companies must seek approval from the government to obtain dollars at the official rate.
Venezuela’s Foreign Exchange Board has reduced dollars for dividend repatriations since 2009, which has led to a buildup of local currency holdings by foreign companies operating in South America’s largest oil producer.
DirecTV (DTV), Latin America’s second-biggest pay-television provider, has $455 million in cash at the official rate of 4.3 in Venezuela, Bruce B. Churchill, president of the company’s Latin America unit, said yesterday in a conference call.
Colgate, which gets about 5 percent of total sales from Venezuela, is the most vulnerable consumer company to a devaluation, Dibadj said. Tom DiPiazza, a spokesman for Colgate in New York, didn’t immediately respond to telephone and e-mail messages seeking comment.
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