P&G to Pfizer Profit Seen Taking Hit on Weaker Bolivar

U.S. companies from Procter & Gamble Co. to Pfizer Inc. are facing a hit to earnings as Venezuela’s government limits access to dollars and the currency falls further.

BlackBerry said yesterday that currency restrictions in the Latin American country contributed to a surprise loss in the quarter ended June 1. Venezuela’s government has limited access to dollars because of currency controls during the past decade, making it difficult for companies with foreign headquarters to repatriate cash at the official exchange rate.

The losses are likely to continue as analysts surveyed by Bloomberg estimate the bolivar will fall an additional 16 percent against the dollar by the end of 2014. Clorox Co. and Pfizer have said their earnings will continue to show the impact in the coming quarters.

“That’s the challenge of emerging markets -- when it’s good, it’s great, when it gets bad, it can get really bad, and we’re certainly seeing that in Venezuela,” Clorox Chief Financial Officer Steve Robb said in interview at Bloomberg last month. Oakland, California-based Clorox recorded a $3 million loss in the three months ended March 31 from the devaluation.

Venezuela has devalued its currency five times in the past nine years, most recently when it weakened the exchange rate by 32 percent to 6.3 bolivars per dollar on Feb. 8. The changes have increased pressure on President Nicolas Maduro’s government to accelerate the approval of foreign currency for imports after the upheaval left behind by Hugo Chavez, who died of cancer in March, sparked the Western Hemisphere’s fastest surge in consumer prices, leaving Venezuelans with shortages of everything from toilet paper to soap.

Weaken Bolivar

The country will look to weaken the bolivar this year without making an official devaluation of the currency, as it tries to boost revenue and narrow the budget deficit, according to a survey of analysts. South America’s biggest crude producer will step back from formally devaluing the bolivar for the sixth time in nine years, said eight out of 11 analysts surveyed by Bloomberg.

Currency restrictions in Venezuela, a key market for BlackBerry, contributed to a 6 percent decline in Latin American revenue, the Waterloo, Ontario-based company said yesterday. It also reduced earnings per share by 10 cents.

BlackBerry Contracts

BlackBerry’s contracts with Venezuelan carriers require that the company is paid in dollars. The carriers can only pay in bolivars due to Venezuela’s restrictions on the availability of dollars. BlackBerry won’t accept the local currency and isn’t recognizing the revenue it received from the carriers because accounting requirements mandate the company recognize sales in the U.S. currency, the company said on a conference call yesterday.

“We have strong relationships in the region and are working to improve the cash flows in this government-controlled process,” Chief Financial Officer Brian Bidulka said on the call.

A stronger dollar also makes it more expensive to repatriate profits from abroad. The greenback is gaining favor, with economic growth in the U.S. forecast to exceed that of the Group of 10 through at least 2015. For companies with a big overseas presence, a stronger dollar reduces the value of international profits and makes their products more expensive in foreign countries.

Consumer Products

Consumer-products companies with a large presence in the market are recording losses. Cincinnati-based P&G said in February that it would record a charge of as much as $275 million to revalue its Venezuelan balance sheet after the devaluation that month. Avon Products Inc., the beauty products manufacturer, saw revenue in Venezuela decline 15 percent in part because of the devaluation in the first quarter, the company said in an April filing.

Clorox, with about one-third of its international business in Argentina and Venezuela, is projecting losses in its Venezuela business in its fiscal 2014, Robb said on a conference call last month.

Energy companies operating in the oil-producing nation are also facing losses. Schlumberger Ltd., the world’s largest oilfield-service provider, reported a $92 million pretax cost in the first quarter due the currency devaluation, and service provider Baker Hughes Inc. said it had a $23 million loss.

Large U.S. pharmaceutical companies that sell their drugs in Venezuela are divided on the long-term impact of the currency on earnings. Merck & Co. in February said it had $140 million of exchange losses in its Venezuelan business in the first quarter. That reduced earnings by 5 cents a share without changing the company’s full-year outlook.

Pfizer reported an $80 million loss from the devaluation and said it expects the currency to have an ongoing impact on earnings.