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P&G Updates Earnings Projections to Reflect Significant Currency Exchange Rate Movements

March 1, 2014



By a News Reporter-Staff News Editor at Investment Weekly News -- The Procter & Gamble Company (NYSE:PG) provided an update of its outlook for fiscal year 2014 all-in and core earnings per share growth following recent policy announcements by the Venezuelan government that impact foreign exchange rates applied to various transactions as well as significant exchange rate movements in Argentina and other developing countries. The Company lowered its guidance for all-in sales and all-in earnings growth to reflect the increased impact from foreign exchange. P&G confirmed its prior outlook for organic sales growth and currency-neutral earnings per share growth. VenezuelaThe Venezuelan government recently announced that certain transactions, such as the importation of finished goods and raw materials for some product categories and the payment of inter-company dividends and royalties, would be transacted at the state-run SICAD currency rate. The most recent SICAD currency rate was approximately 11.4 bolivares fuertes per United States dollar. The official CADIVI exchange rate of 6.3 bolivares fuertes per United States dollar had previously been applied to all transactions, and P&G's local financial statements were previously translated to United States dollars at the same 6.3 rate.

P&G said it expects to incur one-time charges in the range of $230 million to $280 million after-tax, or $0.08 to $0.10 per share, based on its preliminary assessment of the impact of revaluing certain portions of the local Venezuelan balance sheet at the new exchange rate of 11.4 bolivares fuertes per U.S. dollar. The final impact will be dependent on confirmation of final balance sheet positions at the date of the policy change. The Company said it will recognize the one-time charges as non-core items in its fiscal year 2014 results.

In addition, the Company said there will be ongoing financial impacts related to the translation of certain elements of local financial statements at the SICAD exchange rate, including imported goods and services that do not qualify for the official CADIVI rate and residual earnings that will ultimately be paid as intercompany dividends. P&G estimates these impacts will reduce fiscal year 2014 core earnings growth by approximately one percentage point.

P&G noted that, as the SICAD auction rate is a floating rate, the potential exists for additional financial impacts if the auction rate changes significantly. Also, if the SICAD rate becomes applicable to additional categories of imports or other types of currency transactions, P&G could incur additional financial impacts. Other Developing MarketsP&G also updated its earnings outlook to reflect the recent devaluation of the Argentine peso, Turkish lira, South African rand, Russian ruble, Ukrainian hryvnia, Brazilian real and several other currencies to the United States dollar. In the last three weeks, the exchange rate of Argentine pesos to U.S. dollars has devalued by approximately 20%, to approximately 8.0 pesos to the dollar. The Company said its prior earnings guidance assumed a rate of approximately 6.6 pesos to the dollar. P&G said the ongoing financial impacts related to the translation of local financial statements at current exchange rates and inter-currency operational transactions, such as importation of finished products and raw materials, would reduce fiscal year 2014 core earnings per share growth by approximately one percentage point. Fiscal Year 2014 GuidanceP&G confirmed its outlook for organic sales growth of three to four percent for fiscal year 2014. The Company now expects foreign exchange to reduce sales growth by two percent to three percent, which results in an adjusted guidance range for all-in sales growth of in-line to up two percent versus the prior year. This compares to a prior guidance range of one percent to two percent all-in sales growth.

P&G adjusted its guidance range for core earnings per share growth to three percent to five percent, from a previous range of five percent to seven percent, to reflect the impact of Venezuela and other foreign exchange rate changes.

Foreign exchange is now expected to be a nine percentage point core earnings per share growth headwind for fiscal year 2014. On a currency-neutral basis, the Company continues to expect strong core earnings per share growth in the range of 12% to 14%.

On an all-in GAAP basis, diluted earnings per share are now expected to increase two percent to five percent versus the prior fiscal year.

Keywords for this news article include: Procter & Gamble, Finance and Investment, Investment and Finance.

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Source: Investment Weekly News


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