Procter & Gamble (NYSE:PG), the world’s largest consumer-products maker, lowered its sales and forecast for the year Tuesday, citing currency exchange-rate fluctuations and policy changes in Venezuela. According to Reuters, the recent devaluation against the dollar of the Argentine peso, Turkish lira, South African rand, Russian ruble, Ukrainian hryvnia, Brazilian real, and several other currencies has significantly affected P&G’s business in developing countries because the devaluations cause the company’s earnings in those currencies to be worth less when converted back to dollars.
Now, P&G expects to realize a growth in core earnings per share of 3 percent to 5 percent, while its previous outlook reflected a growth of 5 to 7 percent. The Cincinnati, Ohio-based company also revised its forecast for sales growth to a range of flat to a rise of 2 percent versus its prior forecast for growth in a range of 1 to 2 percent.
P&G shares dipped 0.5 percent to $78.45 Tuesday in extended trading following the company’s announcement after having slid 3.2 percent this year through the close of regular trading. Last month, the consumer goods company reported its latest earnings and said it expected “no further currency weakness within our guidance range,” even as markets were experiencing the affects of economic instability and the Federal Reserve’s tapering of monetary stimulus, but it was clear to investors Tuesday that those P&G promises might not exactly hold, and shares were still trading down Wednesday.
Bloomberg reports that although some P&G investors were surprised by the company’s revised outlook this week, other analysts claimed they “should have seen this coming.” Ali Dibadj, an analyst at Sanford C. Bernstein & Co. in New York, explained via Bloomberg that many other companies are expected to make similar announcements to P&G’s because all U.S. companies that do substantial business in developing countries will be affected by the recent devaluations, and although 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.
What’s more, P&G is unable to adjust its price levels in Venezuela because most goods in the country are governed by price controls, keeping P&G from charging more. This is a significant issue for the Ohio-based company because most of its future business is expected to be driven by developing markets, so if P&G is unable to offset its weaknesses in the U.S. by relying on new countries, the company could be in more trouble than many initially realized.
Still, as aforementioned, P&G certainly isn’t the only company navigating these new difficulties, and many others are expected to revise their guidance soon, too, likely highlighting the case of Venezuela to help explain the gap in their earnings. While the U.S. dollar is expected to make steady gains against major currencies this year as the economy improves and causes the Federal Reserve to back off on its stimulus program, the situation of suffering emerging market currencies will likely be much different, and may force many global companies to focus on foreign currency exposure and raise prices frequently.