Ford takes $800 million charge on Venezuelan currency woes
By Bernie Woodall
(Reuters) - Ford Motor Co said on Friday it was taking a charge related to its Venezuelan operations that will cut fourth-quarter net profit by $700 million (466 million pounds), as companies scramble to shield their bottom lines from the country's volatile currency.
For more than a year Ford has said its ability to get auto parts for its operations in Venezuela have been hampered by the valuation of the Venezuelan bolivar, and made the accounting change effective Dec. 31.
The move will cause a one-time pre-tax special item charge in the quarter of $800 million. Still, Ford said its estimate for 2014 full-year pre-tax profit was unchanged at about $6 billion.
Ford's announcement came on the same day that Kimberly-Clark Corp said it took a $462 million charge in the quarter due to changes in the Venezuelan exchange rate. General Motors Co, Clorox, Procter & Gamble, Baker Hughes and Brink's have also taken hits to their respective bottom lines in the past year because of the bolivar.
The accounting change "does not have an impact on Ford's Venezuelan operations or ownership," Ford said. Ford shares fell 0.8 percent to $14.91, in line with session's move by the Dow Jones industrial average.
Venezuela President Nicolas Maduro on Wednesday shook up complex currency controls in the socialist-run country, where a dollar can fetch more than 180 bolivars on the black market instead of the country's three-tiered exchange rate system that has ranged from 6.3 bolivars to about 50 bolivars to the dollar.
Beginning with the first quarter of this year, Venezuela will become the only wholly owned Ford unit that will not include operating results in financial results, Ford said.
Instead, the company said it "will record cash and recognise income" of its Venezuelan operations.
The $800 million charge is an accounting change and does not include any losses in Venezuela which will be reported as part of the company's South American business next Thursday, a Ford spokeswoman said.
Ford said its Venezuela operations had a cash balance at the end of 2014 of about $500 million, compared with about $765 million at end-2013.
Citi analyst Itay Michaeli called the move a "modest positive" because it eliminates the foreign exchange volatility that undercut Ford's 2014 results.
Michaeli also speculated whether rival General Motors Co would make a similar move, saying it could curb the company's exposure to the volatile Venezuelan market and currency.
Ford did not disclose sales and production figures in Venezuela, which are small compared to sales in Brazil and Argentina.
Auto sales in Venezuela fell 76 percent in 2014 to 23,707 vehicles, and the country's auto production fell 72.5 percent to 19,759 vehicles, a national automakers organization said last week.
(Additional reporting by Sagarika Jaisinghani in Bengaluru and Ben Klayman in Detroit; Editing by Alan Crosby)
