Currency move to cut Colgate’s profit

Colgate-Palmolive Co said yesterday that it expects to incur a one-time loss of US$120 million, or 25 cents per share, in the first quarter of 2013, related to the devaluation of the Venezuelan currency. In addition, Colgate expects earnings to be reduced by 5 cents to 7 cents per share per quarter in 2013, due to the translation of financial statements at the new Venezuelan exchange rate.

Venezuela accounts for about 5 per cent of Colgate’s total sales. The devaluation will not have any impact on its 2012 results, or its financial position, the New York-based toothpaste maker said. Venezuela devalued its bolivar currency by 32 per cent on Friday in a widely expected move that will shore up government finances after ailing President Hugo Chavez’s blowout election-year spending in 2012 but will also spur galloping inflation.

It was the country’s fifth devaluation in a decade. Since January 1, 2010, Colgate has designated Venezuela hyper-inflationary and therefore all foreign currency fluctuations are recorded in income, the company said. Monday’s announcement comes after Colgate turned in disappointing fourth-quarter results in Latin America, due largely to economic and labour problems in Venezuela.

An increasingly difficult economic and labor environment in Venezuela hurt both volume and gross profit in the fourth quarter, Colgate said on January 31. The company dealt with a labour slowdown at its Venezuelan factory during the quarter. Shares of Colgate slipped 29 cents to US$108.20 in premarket trading. (Reuters)