Shares of consumer products companies fell Monday as investors worried about how their businesses might be hurt by Venezuela's devaluation of its currency.
On Friday, Venezuelan President Hugo Chavez decided to devalue the country's currency for the first time in nearly five years. The move sparked concern that companies that sell products in Venezuela would look to increase prices to make up for the softening of the bolivar.
On Sunday Chavez threatened companies that raise their prices as a result of the currency devaluation, saying that his government would "take over any business, of any size, that plays the bourgeoisie speculation game."
The currency's official exchange rate had been 2.15 bolivars to the dollar since a devaluation in March 2005. Chavez created a new two-tiered exchange rate, putting the bolivar at 2.6 to the dollar for priority goods such as food and medicine and at 4.3 to the dollar for imports of nonessential products like air conditioners and radios.
The change is being viewed by Chavez as a way to discourage imports of nonessential goods and encourage domestic production of items such as food and clothing, which Venezuela mostly imports.
Connie Maneaty of BMO Capital Markets said in a client note that Colgate-Palmolive Co. and Avon Products Inc., both based in New York, will be hurt by the currency devaluation, as the two businesses see substantial sales from Venezuela.
Maneaty reports that Colgate-Palmolive gets 6 percent of its total sales from Venezuela, while Avon — which provides cosmetics, gift and home products — obtained 5 percent of its total sales from the country as of the third quarter.
The analyst anticipates both companies shares will drop on the Venezuelan news, but that there may be appealing points to buy the stocks over the next few months as the effect of the devaluation become clearer.
Maneaty reaffirmed "Market Perform" ratings for both Avon and Colgate-Palmolive.
Shares of Avon dropped $1.09, or 3.5 percent, to $30.38 in afternoon trading. Colgate-Palmolive's stock slipped 90 cents to $80.61.
Earlier in the day Colgate-Palmolive, whose products include Irish Spring soap and its namesake toothpaste, said it expected a first-quarter one-time gain and quarterly charges in 2010 related to Venezuela's new exchange rate.
Other businesses that could be affected are Energizer Holdings Inc., Kimberly-Clark Corp. and Procter & Gamble Co. St. Louis-based Energizer is widely known for its batteries, while Dallas-based Kimberly-Clark's products include Huggies diapers and Kleenex tissues.
Procter & Gamble spokesman Paul Fox said the Cincinnati-based company, whose brands include Pampers diapers and Gillette razors, was looking at the Venezuela situation carefully to determine the impact of the devaluation. Spokespeople at Energizer, Kimberly-Clark, Avon and Colgate-Palmolive were not immediately available for comment.
Shares of Procter & Gamble dipped 52 cents to $59.92, while Energizer's stock declined 92 cents to $64.61. Shares of Kimberly-Clark shed 45 cents to $62.26.
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