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 amy.guthrie@wsj.com
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