Venezuela's decision to devalue its currency has hit Procter and Gamble's profits by $275 million in what is described as an 'almost overnight' movement.
According to the Wall Street Journal, Procter and Gamble (P&G) has cut its current-quarter and full-year earnings view in light of the decision by the government of Venezuela to devalue its currency. The company indicated that it expects to take $200 million to $275 million in one-time charges. P&G further indicated that if the bolivar remains at current levels, annual profit will be reduced by 6 to 7 cents per share.
The reason form the impact is due to the large amount of business that P&G undertakes with Venezuela, especially in relation to the importing of finished products and raw materials. P&G is an American multinational consumer goods company headquartered in downtown Cincinnati, Ohio, USA. Its products include pet foods, cleaning agents and personal care products.
The decision by Venezuela to devalue its currency, for the fifth time in ten years, caught many business analysts by surprise. The act was in response to inflation levels of 22-percent and a growing demand for dollars to pay for imported goods, according to the New York Times. The new government-set rate is 6.30 bolivars to the dollar, which is down from the previous rate of 4.30 bolivars to the dollar, Business Week notes.
Currency devaluation refers to the lowering of the value of a country's currency within a fixed exchange rate system, by which a government or central bank formally sets a new fixed rate with respect to a foreign reference currency; in essence, a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged.