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 Companies ranging from Ford Motor Co to 3M Co and Caterpillar Inc
reported second quarter earnings that highlighted weakness in their
Latin or South American operations.
While Venezuela's weak currency valuation previously weighed on U.S.
corporate finances, the latest results indicate broader struggles.
Several companies reported tepid performance in Brazil, the biggest
economy in Latin America, where some economists fear the country is
on the verge of a recession.
"The place where we see a little bit more of a challenge is Latin
America," 3M Chief Executive Officer Inge Thulin told analysts on
the company's quarterly conference call on Thursday. The diversified
manufacturer, whose products include office supplies and industrial
adhesives, cut its full-year revenue forecast for the region, the
worst-performing in the quarter, hurt by a sales decline in Brazil.
U.S. companies that have looked to emerging Latin American economies
for growth have seen those expectations dented in recent months by
Brazil's political and economic turmoil, Venezuela's currency woes
and Argentina's renewed battle with major creditors.
"This is kind of the up-and-down of emerging markets," said J.
Bryant Evans, who manages an international equity income portfolio
at Cozad Asset Management in Champaign, Illinois.
'NOT HAPPENING'
A poll of more than 60 economists from earlier this month found that
Latin American economies will probably grow at a slower pace than
previously thought this year. Economies in Brazil, Argentina and
Chile are expected to be weaker this year than in 2013, while Mexico
is far from achieving the fast growth promised by sweeping economic
reforms, the poll found.
U.S. corporate prospects in Latin America have also been dampened by
competition, lack of expected growth among the middle class and
fluctuations in commodity prices, said Rafael Amiel, director for
Latin America economics at research firm IHS.
"For multinational companies, the growth they were expecting in many
Latin American markets is not happening," Amiel said.
South America was the only region in the world where Ford posted a
quarterly loss -- $295 million, compared with a $151 million profit
a year earlier.
South American countries "remain largely closed markets that have
trade barriers up across many sectors of their economies, so they
are actually pretty uncompetitive on a global basis, and that
includes the automotive industry," Ford Chief Financial Officer Bob
Shanks told Reuters. "Now that that capital is flowing out, those
economies are suffering."
The importance of the Brazilian market to U.S. companies has been
rising over the past few years. Though South America has held steady
at about 1.6 percent of sales at S&P 500 companies over the past
three years, Brazil's portion of sales within the region more than
doubled between the start of 2010 and 2014, according to Thomson
Reuters data.
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Earlier this week, the Brazilian government lowered its economic
growth forecast for 2014 to 1.8 percent from 2.5 percent. Economists
think the growth could be even more tepid -- 0.97 percent, according
to a weekly survey.
MEXICAN CRACKS
Caterpillar, which reported a 16 percent decline in second quarter
Latin American sales, lowered its overall sales outlook in part
because of worries over Brazil, Chief Financial Officer Brad
Halverson told Reuters in an interview.
"We are concerned about Brazil," Halverson said. "They raised
interest rates last year. The economy is slowing. Consumer
confidence is plunging along with business confidence."
Whirlpool Corp reported a lower operating profit in Latin America
and downgraded its forecast for appliance market sales in the region
for 2014. Still, company executives said weakness in Brazil was more
of a short-term concern and expressed optimism about the economy.
"We continue to believe that the macroeconomic indicators in Brazil
point to long-term healthy demand growth," Mike Rodman, president of
Whirlpool International, told analysts.
Some cracks also emerged in Mexico, the region's second-largest
economy. For example, a new tax in Mexico has put pressure on U.S.
food companies such as PepsiCo Inc <Pep. n>, which blamed the tax
for sales declines in its food business.
While companies such as 3M reported solid results from the country,
the Mexican economy grew by only 0.3 percent in the first quarter.
John Gerspach, the chief financial officer of Citigroup <C. n>,
which has about $11.7 billion of credit card loans in Latin America,
told analysts last week that "as the Mexico economy continues to
struggle to really regain the momentum that everyone thought that it
would have, consumer spending has not been robust."
(Additional reporting by James B. Kelleher in Chicago, Bernie
Woodall in Detroit, Dan Wilchins in New York and Silvio Cascione in
Brasilia. Editing by John Pickering)
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