Venezuela’s devaluation will cost some U.S. companies

by Jessica Wohl
January 11, 2010

CHICAGO (Reuters) – U.S. companies doing substantial business in Venezuela, such as Avon Products Inc and Colgate-Palmolive Co, are bracing for the impact from the country’s currency devaluation.

Venezuela is largely dependent on imports for consumer goods and the devaluation means many products will cost more for consumers. Sales and profits for foreign companies are expected to slip.

Devaluation of the bolivar announced late on Friday by President Hugo Chavez triggered a shopping spree in the capital city Caracas, as people tried to beat price increases.

Items classified as nonessential now have an exchange rate of 4.3 bolivars per dollar, up from 2.15 and compared with a new rate of 2.6 for essential imports such as food and medicine.

That means companies that had been converting results from Venezuela into U.S. dollars at the official exchange rate of 2.15 must now convert at the new rate of 4.3 if the goods are deemed nonessential.

BMO analyst Connie Maneaty downgraded the whole personal and household products sector she covers, and Procter & Gamble Co in particular, to “market perform” from “outperform” on Monday. She had downgraded Avon, Colgate and Kimberly-Clark Corp in early December over concerns about a potential devaluation.

This article continues at Reuters.

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