Venezuela hits Ford profits with Nicolas Maduro currency, market controls

Its economy is in free fall, inflation is soaring and its dominant export — oil — is plummeting in value, but Venezuela is still making its impact felt as some of America’s biggest corporate names release their latest quarterly earnings statements.

Automaker Ford Motor Co. became the latest major company to absorb a hit from its Venezuelan operations, hurt by collapsing consumer markets and by the price-control and currency policies of the government of President Nicolas Maduro, a protege of the late populist leader Hugo Chavez.

Despite booming U.S. sales, Ford revealed Thursday that net income for the fourth quarter fell to $52 million, citing in particular the $800 million charge the company took because of the currency controls imposed by the government and new restrictions on pricing and marketing. Without the one-time charge, Ford officials said, profits for the quarter would have been $1.1 billion.

The Venezuelan situation is so difficult, Ford said, that the company will quarantine its operations in the country from its other financial results in future earnings reports.

Ford is the latest, but far from the only, company suffering because of its Venezuelan operations. Although it is only South America’s fifth-largest economy by gross domestic product, Venezuela is an outsized consumer market for U.S. exporters with more than two-thirds of consumer goods coming from abroad.

In recent days, companies as diverse as Facebook, American Airlines and industrial products manufacturer Praxair have written down or written off results from their Venezuelan businesses. For Praxair, adjusting to a more realistic exchange rate than the official 6.3 bolivars to the dollar meant a $131 million charge — 45 cents a share — for the three months ending Dec. 31.

“A wide swath of multinational companies with large operations in Venezuela will suffer from having to hold currency that is stuck in the country and depreciating in value,” University of Michigan business and law professor Erik Gordon told the Reuters news agency last week.

Kimberly-Clark Corp., maker of such consumer staples as Kleenex and Huggies disposable diapers, suffered one of the biggest hits. The company announced last week that it would take a $462 million charge related to the uncertainty over Venezuelan currency values. The charge led to a $83 million net loss for the quarter.

Given the currency woes and the need to clear price increases with the government, some companies are getting out of the market altogether. Cleaner giant Clorox announced in October that it was pulling up stakes in Venezuela and told investors there was “no hope” of creating “a sustaining business” in the country given current conditions.

With the International Monetary Fund projecting that Venezuela’s economy will shrink as much as 7 percent this year, Mr. Maduro has promised reforms while lashing out at opposition parties that, he said, were trying to undermine the populist program and extensive social welfare safety net built up by Chavez.

With the country’s credit rating tanking, political divisions getting worse and no sign of a turnaround in global oil prices, Mr. Maduro faces increasingly tough choices in the months ahead, said Harold Trinkunas, a senior fellow and Latin American specialist at the Brookings Institution. Among the unpalatable options: an IMF bailout, a national debt default or spending cuts and painful reforms that the government may not be prepared to swallow.

“Economic reform measures work best when they are backed by a substantial degree of political and social consensus,” Mr. Trinkunas wrote in an analysis released this week. “However, this is something that is not currently available in highly polarized Venezuela.”