Bloomberg News

Procter & Gamble Cuts Profit Forecast on Currency Effects (2)

February 12, 2014

Procter & Gamble Co. (PG:US), the world’s largest consumer-products maker, lowered its forecast for profit and sales growth this year because of currency exchange-rate fluctuations and policy changes in Venezuela.

Core earnings per share, which excludes some restructuring charges, will increase 3 percent to 5 percent this year, down from a previous forecast of 5 percent to 7 percent, the company said yesterday in a statement. Revaluing some portions of its business in Venezuela at the government-set exchange rate will result in a charge of as much as 10 cents a share, P&G said.

When it reported earnings last month, Cincinnati-based P&G said it expected “no further currency weakness within our guidance range,” even as markets were experiencing the biggest sell-off in emerging-market currencies in five years because of economic instability and the effect of the Federal Reserve’s tapering of monetary stimulus. It said that events in markets such as Venezuela and Egypt could put that outlook at risk.

“All of these companies should have seen this coming,” said Ali Dibadj, an analyst at Sanford C. Bernstein & Co. in New York. In a note yesterday, Dibadj said he expects that more companies will make similar announcements.

While P&G generates a smaller percentage of sales in Venezuela than other consumer companies, it’s disproportionately affected by currency swings because it relies less on local production, Dibadj said yesterday in a telephone interview. He has an outperform rating on the shares, the equivalent of a buy.

About 2 percent of the company’s sales come from Venezuela, according to Connie Maneaty, an analyst at BMO Capital Markets Corp. in New York.

Moving Target

“What’s happening may not be a one-time event,” Maneaty said yesterday in a telephone interview. “I think it’s much more difficult for companies right now because it’s almost like they keep moving the goal posts.”

P&G is further affected because most of the goods it sells in Venezuela are governed by price controls, meaning it can’t simply charge more, said Maneaty, who has an outperform rating on the stock.

Chief Executive Officer A.G. Lafley has said developing markets will be “significant” drivers of P&G’s growth. Sales gains in such countries have helped the company overcome weakness in the U.S., where it’s trying to recapture market share in key categories such as detergents.

P&G fell 1.7 percent to $77.49 at the close in New York. The shares (PG:US) have slid 4.8 percent this year, compared with a 1.6 percent drop for the Standard & Poor’s 500 Index.

Last year, 39 percent of P&G’s sales came from emerging markets, compared with about half for Colgate-Palmolive Co.

Partial Devaluation

Venezuela devalued its currency last month for some categories, such as imported finished goods, to 11.4 bolivares per dollar, from 6.3. The move followed five previous devaluations in the past decade, including a 32 percent reduction a year ago.

“This sort of volatility has been going on for four years now,” Maneaty said. “In a more normal economic environment, Venezuela has had a pretty robust consumer market.”

Maneaty said she doesn’t anticipate stabilization anytime soon.

“It’s a headache,” she said. “Companies, at least outwardly, have to spend an unusual amount of time explaining how Venezuela negatively affects their earnings.”

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • PG
    (Procter & Gamble Co/The)
    • $83.11 USD
    • 0.08
    • 0.1%
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