Avon Products (AVP) Continues Dismal Earnings Trend in Q2 - Analyst Blog


Persistent troubles at Avon Products Inc. ( AVP ) resulted in another tough quarter, wherein both top and bottom lines fell shy of estimates. The global beauty company reported adjusted earnings of 20 cents per share for second-quarter 2014, a penny below the Zacks Consensus Estimate and plunging 31% from the year-ago quarter  figure of 29 cents.

Avon Products Inc - Earnings Surprise | FindTheBest

Moreover, on a reported basis, the company posted earnings of 4 cents per share compared with 19 cents in the year-ago comparable quarter.

Total revenue for the quarter declined 13% year over year to $2,139.8 million compared with $2,466.8 million a year ago. It also missed the Zacks Consensus Estimate of $2,221 million. On a constant currency basis, total revenue declined 3% year over year.

During the quarter, the company registered an increase of 3% in price/mix, while Active Representatives and total units slipped 6% each. Average orders went up by 3% in the quarter.

Avon, which competes with Inter Parfums Inc. ( IPAR ), Nu Skin Enterprises Inc. ( NUS ) and Coty Inc. ( COTY ), registered declines of 13% and 5% in its Beauty Products and Fashion & Home segment revenues, respectively. On a constant dollar basis, Beauty Products and Fashion & Home revenues declined 3% and 5%, respectively.

Adjusted gross margin of this Zacks Rank #3 (Hold) company contracted 30 basis points (bps) year over year to 63%, on account of negative currency translation effects due primarily to Latin America and Europe, Middle East & Africa. This was, however, partly offset by a decline in supply chain expenses, and better mix and pricing, prompted by inflationary pricing in Latin America.

Adjusted operating margin contracted 100 bps to 8.5%, as a result of revenue decline related to fixed expenses along with negative foreign currency translation as mentioned before.

Region-wise Performance

In the quarter, Avon's revenues in Latin America fell 16% year over year to $1,053.8 million, while it inched up 1% on a constant-dollar basis. The rise resulted from the acknowledgement of Value Added Tax (VAT) credits in Brazil along with an increase in average orders, though offset by reduction in Active Representatives. On a currency neutral basis, revenues increased 3% in Brazil and 31% in Venezuela, while it declined 12% in Mexico. Units sold and Active Representatives were down 3% and 6%, respectively, year over year.

In North America , sales skidded 20% year over year to $304.1 million, mainly due to a fall in Active Representatives and units sold. On a constant dollar basis too, revenues were down by 20%. Units sold for the region waned 29% year over year, while Active Representatives slipped 19%. Regional Beauty and Fashion & Home sales were down by 20% and 19%, respectively.

Avon's revenue of $658.1 million from Europe, the Middle East and Africa was down 3% year over year. On a currency neutral basis, revenues remained relatively flat, due to a negative impact from the closure of business in France and a fall in Active Representatives, which was offset by higher average orders. Regional breakup shows that sales declined in all regions, though on a constant dollar basis it grew in most regions. Constant dollar revenue increased 4% in Russia, 1% in U.K. and 9% in South Africa while sales in Turkey remained flat. For Europe, the Middle East and Africa, Avon registered a 1% decline in Active Representatives. Meanwhile units sold were flat compared to last year.

The Asia-Pacific division's revenue dipped 13% to $172.6 million, while constant dollar revenue slipped 9% due to declines in most markets. The region marked an 8% decline in Active Representatives and a 5% fall in units sold. Country wise, the region recorded a 30% revenue decline in China while revenue in Philippines was up 1%, both on a constant dollar basis.

Other Financial Details

Avon exited the quarter with cash and cash equivalents of $777.5 million, long-term debt (excluding current maturities) of $2,480.0 million and shareholders' equity of $187.6 million.

Moreover, in conjunction to the earnings release, the company announced a quarterly dividend of 6 cents, payable on Sep 2, 2014, to shareholders of record as on Aug 14.

Headquartered in New York City, Avon directly sells cosmetics, fragrances, toiletries, jewelry and accessories. The company, marketing globally through more than six million independent sales representatives, is the world's largest direct seller of beauty products.

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INTER PARFUMS (IPAR): Free Stock Analysis Report

NU SKIN ENTERP (NUS): Free Stock Analysis Report

COTY INC-A (COTY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: AVP , IPAR , NUS , COTY



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