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Arcos Dorados Holdings, Inc. Message Board

  • earlyretirement123 earlyretirement123 May 7, 2012 4:40 PM Flag

    Keep in mind the risks in South America....

    I'll give my 2 cents. I got in ARCO right after the IPO. I dumped near the highs but still following the stock as I have friends that work for the company in Buenos Aires.

    I still watch it from time to time. It caught my radar with the big down draft and looking to maybe jump back in on the long side if it goes down a bit more.

    They are doing well but you still have to remember the type of risks in many countries in South America. Especially in Buenos Aires, Argentina where this company is based. You have risks there that you don't have in first world countries. Many of you reading this probably have never been in South America let alone lived there.

    I lived there for many years and I also own several companies in South America. Let me tell you that in some respects countries like Argentina are still like the wild west. For example, imagine having to pay your employees a mandatory 27% a YEAR raise year after year after year. That is what happens there in Argentina with the unions. My salary costs were doubling every 3 year or less! Some places can raise their prices to match the true 25% to 30% a year inflation going on in Argentina but many places can't. McDonald's is one of those places. They can't raise their prices for a Big Mac 30% a year even though their costs are increasing year over year.

    Also, the operating costs at each location should continue to go up each year in places like Argentina. Not only because of these government mandated huge yearly raises but also because of the wicked inflation going on in Argentina. The government has also ended subsidies in the electricity, gas, water sectors. Businesses are probably less affected vs. the business sector as they didn't get as many subsidies but still my electricity bills went up 300% overnight. I do agree they were too low to begin with and artificially low due to the government's meddling with the utility companies.

    But you still have to factor in all of these increased costs due to the inflation in some of these countries in South America. Brazil had a change in law increasing the salary and they probably can implement some more mandatory raises which make it very difficult to control your bottom line and expenses heading into the future.

    Some other countries in Latin America are the same way. So you have to keep these kinds of things in mind when investing in a company which has all it's activities in Latin America.

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