I'll be back with more local color/explanations later, but Merck can't reasonably be expected to obtain hedges in hyper-inflationary markets like Venezuela -- and because it is nearly the largest pharma (by revenue) there, it suffers greatly when Mr. Chavez devalues the bolivar, as he did last week.
No one ought to fault Whitehouse Station for this, as I say, though -- because hedging this exposure would cost several times the exposure itself. The good news is that Merck sells a lot of life saving medicine there -- and it still projects that it will make the year 2013, overall -- as to its announced guidance.
The deval makes US tourists happy -- as it makes Venezuelan goods and services less expensve, in US dollars -- i.e., more purchasing power. Conversely, though, it means Merck receives less -- for each bolivar collected for its drugs, when it brings the same home to the US -- to report GAAP sales, and earnings per share.
Here is a bit of the Bloomberg item -- do go read it all:
. . . .Earnings excluding one-time items will be 76 cents to 78 cents a share, the Whitehouse Station, New Jersey-based company said today in a statement. Analysts had been expecting 86 cents, the average of 14 estimates compiled by Bloomberg.
The devaluation of the currency won’t change Merck’s full- year earnings outlook, the company said. The Venezuelan government said on Feb. 8 that it intended to devalue its currency, moving the exchange rate to 4.30 bolivars per dollar from 6.30 bolivars per dollar. . . .
Do stay tuned -- more to come -- but this won't move the needle much, either way, on the NYSE.
Watch out for euro-zone headwinds, though -- and those are hedge-worthy. In some future installment, I'll analyze Mr. Kellogg's EU hedging strategy, given current EU market dynamics.