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Procter & Gamble Cuts Forecast on Emerging Market Threat

NEW YORK (TheStreet) -- Procter & Gamble (PG) has cut its 2014 guidance on the back of emerging market weakness.

In premarket trading, shares have taken off 0.9% to $78.84.

The largest maker of household products revised its outlook after foreign exchange rate fluctuations in developing nations and recent policy changes in Venezuela left it susceptible to lower-than-expected revenue and profits.

Devaluation of developing nations' currencies such as the Argentine peso, Turkish lira and Brazilian real means profits earned in those countries are degraded upon conversion to the greenback. Since late January, the value of the Argentine peso has eroded by around 20% to 8 pesos to the U.S. dollar.

"Foreign exchange is now expected to be a nine percentage point core earnings per share growth headwind for fiscal year 2014," the company said in a statement.

With foreign exchange volatility factored in, revenue growth for the June-ending fiscal year is expected flat to 2%, lower than previous guidance of 1% to 2% growth. Core earnings are likely to increase 3% to 5%, compared to previous estimates of 5% to 7%.

Additionally, the Venezuelan government recently announced that imported finished goods would be transacted at the state-run exchange rate of 11.4 bolivares Fuertes per U.S. dollar, nearly double the previous rate of 6.3 bolivares Fuertes. Procter & Gamble expects to absorb one-time charges between $230 million and $280 million as a result.

Stripping out currency impact, the Cincinnati-based firm expects organic sales growth of 3% to 4% and earnings to increase 12% to 14% over the year. Analysts surveyed by Thomson Reuters anticipate earnings growth of 4.4% to $4.23 a share.

TheStreet Ratings team rates PROCTER & GAMBLE CO as a "buy" with a ratings score of A. The team has this to say about their recommendation:

"We rate PROCTER & GAMBLE CO (PG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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