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Venezuela Takes on Pepsi - Analyst Blog

Posted
2/13/2012 4:07:00 PM
By: Zacks.com
Referenced Stocks:JNJ;KO;PEP;PG;UL

In an effort to look into complains of abnormal price rise, the Venezuelan government has pulled up beverage giant Pepsi Inc.'s ( PEP ) local arm Pepsi-Cola Venezuela.

Pepsi Cola Venezuela, which is a joint venture between Pepsi and the country's largest foodmaker, Empresas Polar, has been accused of hiking bottled mineral water prices, selling water at a price which was higher than the ceiling provided by the government of Venezuela.

Government has send an order by e-mail to the company, stating that it should submit the receipts for the November-to-January period within four days, showing how much it has been charging for the water. Government requires Pepsi to charge 45.86% lower than the existing rate of $5.35 for their bottled water.

Alarmed by an inflation rate of of 22.7% - the highest in Latin America - the Venezuelan government late last year froze the prices of 19 personal care items ranging from toothpaste to deodorant until mid-January, to prevent monopolies from "ransacking the people." 

The companies which were affected by this policy included Coca-Cola Company ( KO ), Pepsi, Nestle, Unilever Plc. ( UL ), Knorr and Johnson & Johnson ( JNJ ) and Procter & Gamble Company ( PG ). The government's decision was followed by frenzied buying by worried customers, who feared a shortage of these commodities in a country which depends a lot on imports.

The government has also decided to lower the prices of Roll On deodorant made by Procter & Gamble, 24% below its previous price of $4.14. Reportedly, prices of some commodities are feared to be lowered by 61% and shampoo's prices will be lowered by 37% to $6.05.

Venezuela has been putting price ceilings in since 2003 on staples like cooking oil and rice, whose prices are still under control.

However, analysts and investors are not happy with the government's decision and they feel that the right way to control inflation is by sound economic policies and not by irrational price control.

Currently, we prefer to be Neutral on Pepsi. Furthermore, it holds a Zacks #3 Rank, which translates into a short-term Hold rating.


 
JOHNSON & JOHNS ( JNJ ): Free Stock Analysis Report
 
COCA COLA CO ( KO ): Free Stock Analysis Report
 
PEPSICO INC ( PEP ): Free Stock Analysis Report
 
PROCTER & GAMBL ( PG ): Free Stock Analysis Report
 
UNILEVER PLC ( UL ): Free Stock Analysis Report
 
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