Colgate-Palmolive Co. (CL:US), Avon Products Inc. (AVP:US) and other U.S. makers of household products with operations in Venezuela fell after the country devalued its currency for the fifth time in nine years.
Colgate, the world’s largest toothpaste maker, dropped 1.5 percent to $108.49 at the close in New York and Avon (AVP:US), the largest door-to-door cosmetics seller, slipped 2.5 percent to $16.85. Clorox Co. (CLX:US), Kimberly-Clark Corp. (KMB:US) and Energizer Holdings Inc. (ENR:US), the maker of batteries, also declined.
Though Venezuela has only 0.4 percent of the world’s population, it has a disproportionate share of sales for many consumer products companies, according to Connie Maneaty, an analyst at BMO Capital Markets. Businesses operating in the country are also hobbled by price controls, particularly those making basic necessities such as diapers and bleach.
Those companies won’t be able to mitigate the impact of the devaluation by raising prices as they have done in the past, Ali Dibadj, an analyst at Sanford C. Bernstein & Co. in New York, said today in a telephone interview.
“It not only impacts their current business in Venezuela, but their growth prospects out of Venezuela going forward,” said Dibadj, who rates Colgate and Avon market perform.
Colgate, Avon and Oakland, California-based Clorox depend on Venezuela for 5.2 percent, 4.1 percent and 2.1 percent of sales, respectively, Dibadj said in a November report.
While the affected companies may not have much ability to respond to devaluation, investors should keep in mind that “they’ve been benefiting from Venezuela for many years as prices were going up,” Dibadj said.
Other U.S. companies with operations in Venezuela include Cincinnati-based Procter & Gamble Co. (PG:US), the world’s largest consumer products maker, and Newell Rubbermaid Inc. (NWL:US), the maker of Sharpie pens and Calphalon cookware.
P&G, Colgate and Johnson & Johnson (JNJ:US) had to slash prices on products such as toothpaste, toilet paper and bleach after President Hugo Chavez set price caps on 19 consumer care products in April to slow inflation. Chavez, who says that the price caps are necessary to combat what he’s called “capitalist speculation,” threatened to nationalize any companies that doesn’t comply.
The Venezuelan government will weaken the exchange rate by 32 percent to 6.3 bolivars per dollar, Finance Minister Jorge Giordani told reporters today in Caracas. A spending spree that almost tripled the budget deficit last year helped Chavez, 58, win a third six-year term. The devaluation can help narrow the deficit by increasing the amount of bolivars the government receives from oil exports.
“We knew it was possible that further devaluation in Venezuela could occur,” Bob Brand, a spokesman for Dallas-based Kimberly-Clark, the maker of Huggies diapers and Kleenex tissues, said in an e-mail today. The company’s target for 2013 is to increase adjusted earnings per share by 5 percent to 8 percent, assuming about a 1 percentage point drag from Venezuela, Brand reiterated today.
Avon declined to comment on Venezuela, Jennifer Vargas, a spokeswoman said.
In a November conference call, the company said it is “managing the business assuming that there is a potential devaluation” and “taking steps to try to mitigate the impact.”
Colgate, which gets 29 percent of its revenue from Latin America, said on a Jan. 31 conference call that earnings per share will grow at a double-digit rate, on a dollar basis, in 2013 excluding the impact of a devaluation in Venezuela. It referred to previous comments it made that a “significant devaluation” along with price controls would “weigh heavily” on its results.
Bleach maker Clorox on its earnings call on Feb. 4 said for its fiscal second half that it was factoring in “a possible currency devaluation in Venezuela.”
P&G said in August that a potential currency risk may be a “large” devaluation in Venezuela after its presidential elections.
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