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US Dollar Impacted Consumer Packaged Goods Companies

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Geographic presence

Consumer packaged goods companies’ are geographically diverse. As a result, they face stiff competition from other international as well as nationally advertised brands within each category. They also face competition for private label brands. Procter & Gamble (PG) sells its products in more than 180 countries. It derives ~63% of its revenue from outside the US. Colgate-Palmolive (CL) derives ~77% of its revenue from outside the US. Kimberly-Clark (KMB) derives more than 50% of its revenue from outside the US. Clorox (CLX) derives ~18.1% of its sales from the international markets.

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Stronger US dollar

Although geographic expansion increases brand penetration, it also increases the impact of foreign exchange currencies. For example, Procter & Gamble’s large positions in the toughest markets like Russia, Ukraine, Japan, and Venezuela and the significant devaluation of almost all non-US currencies including China could have an impact on Procter & Gamble’s margins and EPS (earnings per share) in the quarter ending on December 30, 2015. Devaluation had a significant impact in these tough markets. They represented about $17 billion or 25% of sales in fiscal 2015[1. Year ending June 30, 2015].

Clorox continues to face substantial economic and political instability in Argentina. The devaluation of the Argentine peso and high inflation had a negative impact on the company’s net sales and net earnings. Recently, Clorox and Procter & Gamble discontinued their Venezuela operations due to strong currency devaluations, inflation, and the price freeze.

In comparison, Colgate-Palmolive and Kimberly-Clark don’t have a strong presence in the toughest markets in the world.

Local manufacturing and hedge instruments

In order to improve profitability, Procter & Gamble is focusing on local manufacturing in order hedge operationally against foreign exchange movements. Clorox also uses instruments to hedge certain foreign currency risks, these hedges only offset a small portion of the company’s exposure to foreign currency fluctuations.

Colgate-Palmolive and Kimberly-Clark have exposure in the Vanguard Consumer Staples ETF (VDC). Together, they accounted for 5.5%[2. Updated as on December 24, 2015] of the portfolio’s total weight.

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