Coca-Cola Femsa Takes Foreign-Exchange Hit in Venezuela

By Amy Guthrie 

MEXICO CITY--Latin America's biggest bottler of Coca-Cola Co. products took a financial hit in the fourth quarter as it moved to a more realistic foreign-exchange rate to account for its Venezuelan business.

Coca-Cola Femsa SAB said Wednesday that the decision to use a weaker exchange rate in converting its Venezuelan results led to an 8.5% drop on-year for consolidated quarterly revenue, which came to 39.57 billion Mexican pesos, or $2.66 billion. Net income was flat at 3.08 billion pesos. Venezuela is one of nine countries in Latin America in which Mexico City-based Coca-Cola Femsa operates.

Rampant inflation, a lack of liquidity and rising uncertainty in Venezuela made the switch to a rate of 50 Venezuelan bolívares to the U.S. dollar necessary, said Coca-Cola Femsa Chief Financial Officer Hector Treviño, who described the company's internal debate over adopting the new rate as "lengthy and difficult."

Previously the bottler was using a once official rate of 12 bolívares to the dollar for accounting purposes. Based on the new rate, Venezuela will represent 6% of Coca-Cola Femsa's consolidated revenue.

Price controls and an overvalued local currency have led to a scarcity of dollars and imports in Venezuela, causing frequent shortages of basic products. Venezuelan President Nicolás Maduro, whose approval ratings have sagged to the low 20s, blames the shortages on economic elites who he says want to stoke political tensions by refusing to put products on store shelves. Earlier this month, Venezuelan officials detained executives from a local supermarket chain and a pharmacy for allegedly hoarding goods to create unrest.

Coca-Cola Femsa remains "fully committed" to serving Venezuelan customers, Mr. Treviño said during a call with analysts. Despite the market's challenges, the bottler increased its sales volume in the country by 8% last year, and gained market share. The company is working to increase productivity at the unit, while attempting to source more raw materials from within Venezuela to reduce the foreign-exchange impact.

Coca-Cola Femsa says it still has access to a more favorable controlled rate of 6.30 bolívares per dollar for certain raw materials imported into the South American country.

Analysts expect the company will have to make further foreign-exchange adjustments down the road as Venezuela has already moved to replace the 50-bolivares rate, known as Sicad II, with a limited free-floating currency market where dollars were recently sold at 172 bolívares.

"We are not sure this will be the final adjustment to reflect Venezuela in [Coca-Cola Femsa's] financial statements," wrote Credit Suisse in a note.

Write to Amy Guthrie at [e-mail]

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