In retrospect, P&G may have wanted to supply a little more color on its risk exposure. The company sells over $1 billion of products in Venezuela. Moreover, price controls enacted by Chavez in 2012 have limited P&G’s ability to price its way out of sales weakness or use pricing to mitigate currency impacts. Other companies are subject to the same price controls, but P&G particularly suffers due to its broad range of products. In April of last year, price cuts mandated by the Venezuelan government forced P&G to reduce its organic sales growth projections by a 0.5% and its global earnings projections by 3%.
Those downward revisions were seemingly in the rearview mirror in the January call, and now there is a decent chance that P&G will trim its upward revisions from two weeks ago. Dizzy yet? Glossing over this particular risk, especially in light of the seriousness with which it was approached by its peers, may return to haunt P&G, as investors are increasingly questioning CEO Bob McDonald’s leadership. For this and other reasons, potential P&G buyers should stand by for a clearer picture of the company’s near-term prospects.
Arcos Dorados Holding Inc (NYSE:ARCO)
Arcos Dorados, the world’s largest McDonald’s Corporation (NYSE:MCD) franchisee, is the dominant restaurant company in Latin America’s quick-service category. As you might expect, Arcos sells a fair number of burgers within the borders of its fellow South American growth colleague. During the first six months of 2012, Arcos derived roughly 8.7% of its earnings from Venezuela. In this case, potential investors may want to sit tight until the company’s next earnings call on March 8. At that point, investors should have a specific picture of the projected effects of the bolivar devaluation on 2013 results; it will certainly be a topic treated in Arcos’ 2012 form “20F” (foreign corporation’s version of the 10-K annual report filed with the SEC).
More to come?
Venezuela has historically been an important market for consumer-based multinationals trying to gain a toehold in Latin America. Yet an overreliance on oil, deficit spending, difficult price mandates, and the unpredictable expropriation of assets are just a few of the problems besetting those companies that are still trying to make it here. Not to mention a leader who distrusts the very multinationals providing much-needed basic consumer goods in an export-based economy. Watch out, multinational profit and loss statements: We may not have yet seen the end of bolivar devaluation in 2013.
The article Venezuelan Currency Devaluation: 4 Companies to Watch originally appeared on Fool.com and is written by Asit Sharma.
Fool contributor Asit Sharma has no position in any stocks mentioned. The Motley Fool recommends McDonald’s and Procter & Gamble. The Motley Fool owns shares of Arcos Dorados and McDonald’s.
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