Venezuela gets ugly for some U.S. companies

Venezuela – well-known for its dominance in beauty pageants – is turning ugly for a number of U.S. multinational companies doing business there.

During the past eight weeks, 35 companies in the Standard & Poor's 500, including nutrition supplement company Mead Johnson Nutrition (MJN), MasterCard (MA), Marathon Petroleum (MPC) and Coca-Cola (KO), have specifically called out concerns they have in Venezuela or have discussed how they've separated out results from the region due to the extreme conditions there, according to a USA TODAY analysis of data from S&P Global Market Intelligence. Shares of these 35 companies - on average - are up 1.0% this year - roughly in line with the S&P 500's 1.6% gain, although the influence of the Venezuela influence is likely minor.

Plunging oil prices have wreaked havoc on the country and slowed its economy down dramatically.  Venezuela is hit hard by oil prices because it's one of the world's largest exporters of oil. Out-of-control inflation has resulted in rampant power outages, soaring poverty and unavailability of medicine and basic social services turning the country into a rocky spot for U.S. companies doing business there. The Caracas Stock Exchange Stock Market Index took a 28% hit between August and September last year as the oil price plunge worsened, according to data from Bloomberg. The plunge has stabilized since, the index is up 4% this year, but concerns remain as the political situation remains in flux.

"Venezuela has been a challenging market, but it seems the impacts have varied by company," says Erin Lash, analyst at Morningstar.

U.S. companies seem to be having varying experiences in the country. Coca-Cola in Venezuela has "temporarily ceased production of all sugar-based beverages due to a lack of raw materials," according to an e-mailed statement from the company. Coke's Venezuela operations will continue to produce zero-sugar drinks like water and Coca-Cola Light in the country. Sugar suppliers in the region hope to boost their inventories in the "near term," Coke says. Coke has been signaling issues in the region for awhile including in April when Chief Operating Officer James Robert Quincey said, "Latin America delivered double-digit organic revenue growth due to a strong focus on consumer and customer segmentation despite worsening conditions in Brazil, Venezuela and Argentina."

Coke isn't alone with challenges in the country. Mead Johnson singled out Venezuela as being one of the toughest markets it is dealing with – and a key reason why the company's revenue fell 6% factoring out currency fluctuations due to suspended shipments to the nation. "The unfavorable year-over-year comparison was mainly driven by tough base comparisons in our two largest markets and affecting the quarter itself are significantly reduced shipments to Venezuela," said CEO Peter Jakobsen during the company's conference call for investors in April. The company's Latin American sales were actually 7% higher if you factor out Venezuela and currency effects. "We expect very limited sales in Venezuela," Jakobsen says.

Given the oil-rich nature of Venezuela, it's not surprising many energy companies are dealing with issues there. "I can tell you that it is difficult doing business with them (Venezuela)," said Michael Palmer, senior vice president of supply, distribution and planning at energy company Marathon in an April conference call with investors. "There hasn't been a lot of spot opportunities from Venezuela for us so far this year. So that's certainly been difficult." Over at credit card processor MasterCard, Chief Financial Officer Martina Hund-Mejean said, "And the one country that is still having a huge amount of trouble is really Venezuela from a Latin American point of view," in a called with investors in May.

Many companies are separating financial results from Venezuela so investors can clearly see what the effect there is, says John Staszak, analyst at Argus Research. "Multinationals usually discuss separately or de-consolidate Venezuelan operations," he says. "They consider it an unusual item and look at other metrics or regions more closely."

Such separation gives investors the ability to see just how extreme the situation in Venezuela is and also helps identify some companies that are navigating fine. Venezuela was actually a region of strength for packaged foods company Kellogg (K) during the first quarter due to pricing changes by the company there.  Omitting price changes in Venezuela, the company's revenue fell 1% factoring out currency swings during the first quarter. But revenue rose 6.6% leaving in Venezuela's results. "We continue to manage the Venezuelan business very carefully, navigating local supply and power outages," said CEO John Bryant in a May call with investors. "Despite this, we gained share in Venezuela in the quarter."