There’s one thing that executives from New York to Madrid to Mexico City can agree on these days: Brazil is a serious drag.
DuPont, the 213-year-old chemical maker, added to the ranks of companies blaming the currency collapse and recession in Latin America’s largest economy for its earnings woes when it lowered this year’s profit forecast. Telefonica SA, America Movil SAB, Monsanto Co. and Tiffany & Co. have all seen damage to their bottom line this year as Brazil’s real posts the biggest decline among the world’s major currencies and the economy heads for its longest contraction since the Great Depression, Bloomberg reported.
The impact Brazil is having on companies across the globe underscores the depth of its problems after the country become one of the world’s most important emerging markets for multinational businesses. After seeing its economy quadruple in dollar terms during Luiz Inacio Lula da Silva’s presidency from 2003 through 2010, the nation is now suffering from a rout in commodities prices, soaring inflation and a growing budget gap.
DuPont Co., which got 6.7% of its revenue from Brazil last year, said Monday that operating earnings this year will be $2.75 a share, down from the $3.10 it forecast previously. The average estimate of eight analysts surveyed by Bloomberg was $3.04.
Brazil’s economy will shrink 3% this year and 1% in 2016, according to the International Monetary Fund, while inflation remains double the central bank’s target. The malaise, and the 31% tumble in the real this year, is eroding the popularity of President Dilma Rousseff. That’s left her fending off calls for impeachment as she seeks to promote austerity measures, shore up the budget and save the country from more credit-rating reductions. Standard & Poor’s cut the country to junk last month.
Monsanto, the agricultural company that in 2011 was calling Brazil’s corn market "one of the single largest sources of new growth in the next few years," saw its earnings estimates lowered by Deutsche Bank AG last week to reflect the drop in the real. Analyst David Begleiter cut his price target for the shares to $110 from $130.
On Tuesday, armored-car provider Brink’s Co. cut its forecast for profit this year and next, citing in part “continued economic weakness in Brazil and currency headwinds.” The company got more than 10% of revenue from the Latin American nation last year.
Telecommunication companies are also suffering as consumers cut expenses. Barclays Plc on Tuesday lowered its recommendation on Telecom Italia SpA to the equivalent of sell from neutral, saying the outlook in Brazil is challenging. Madrid-based phone company Telefonica’s Chief Operating Officer Jose Maria Alvarez- Pallete said at the end of August that the company is coping with Brazil’s recession as it seeks to boost its share of the broadband market. Brazil accounts for more than a fifth of sales.
