BOSTON, May 1 (Reuters) - Venezuela’s volatile currency undercut profits at a number of large U.S. companies during the first quarter, an ongoing problem that could force some of them to exit the South American country or write down all of their assets there.
Operating conditions in Venezuela worsened in February after President Nicolas Maduro’s socialist government launched a 70 percent devaluation of the bolivar via a new “free floating” currency system known as Simadi.
American companies such as diet-shake maker Herbalife Ltd complain that shortages in key supplies and the growing difficulty in converting bolivars into dollars has hurt their operations.
Meanwhile, U.S. corporate exposure to Venezuela’s unstable economy only grows as their bolivar-denominated cash continues to accumulate. The plunge in oil prices has hurt the supply of dollars in Venezuela even more as crude is the country’s main export and source of dollars.
“Entities may have a harder time obtaining U.S. dollars this year than at any other time since currency controls were first implemented (in 2003),” accounting firm Ernst & Young said late last month in a report.
Herbalife, which did not return messages seeking comment, has said in regulatory filings it may be forced to deconsolidate its operations in Venezuela if currency restrictions intensify or do not improve. Last month, General Motors Co disclosed it would likely stop making vehicles in Venezuela in July.
Another solution is to follow the path of Ford Motor Co , which earlier this year wrote off its entire investment in Venezuela when it took an $800 million pre-tax charge. That means no matter how much worse things get in Venezuela it shouldn’t have to take further impairment charges.
And the move has allowed Ford to avoid the nagging losses from Venezuela that continue to plague some of the biggest American companies.
Avon Products Inc, Halliburton Co, Ingersoll-Rand PLC Kimberly-Clark Corp, Schlumberger and Time Warner Inc were among a number of companies that reported Venezuela-related currency losses in the first quarter.
Toy maker Mattel Inc said had it used Venezuela’s new Simadi exchange rate in the first quarter it would have triggered a pre-tax charge of about $21 million.
“Mattel may consider ceasing operations of its Venezuelan subsidiary, which could result in a pre-tax charge to its consolidated statement of operations of up to $95 million,” according to the company’s latest quarterly filing with the Securities and Exchange Commission. (Reporting By Tim McLaughlin)