Persistent troubles at Avon resulted in another tough quarter,
wherein both top and bottom lines for second-quarter 2014 fell shy
of estimates. We remain concerned about the challenges hindering
the company's growth over the past few quarters. These include loss
of active representatives, declining volume and unfavorable foreign
currency translations, along with reduced margins in mature markets
like North America. Moreover, weakness in the emerging markets,
like China as well as regulatory and cash flow issues risking
dividend are the other negatives. Despite all these adverse factors
we have maintained our Neutral recommendation as the company has
displayed signs of improving fundamentals of late. We note that
Avon has been making significant progress in improving its balance
sheet through refinancing activities and cutting costs by slashing
jobs and exiting operations in the underperforming markets.
Headquartered in New York City, Avon Products Inc. directly
sells cosmetics, fragrances, toiletries, jewelry, and accessories.
The company markets around the world through more than 6.0 million
independent sales representatives and is the world's largest direct
seller. The company's products are classified under the following
categories: Beauty, Beauty Plus, Beyond Beauty, and Health and
Wellness. Beauty products include cosmetics, fragrances, and
toiletries under the brand names of Avon Color, Anew, beComing,
Skin-So-Soft, and Advance Techniques Hair Care, among others.
Beauty Plus consists of jewelry, watches, apparel and accessories.
Beyond Beauty products include: home products, gifts and decorative
items. Health and Wellness products include vitamins, exercise
equipment and other related items.
The company provides its operational results under 4 reportable
segments Latin America Europe, the Middle East & Africa (EMEA)
North America and the Asia Pacific.
Management is currently focused on expanding the direct selling
business in the emerging markets. The company's direct selling
model is a competitive advantage, particularly in the developing
markets as it allows the company to quickly penetrate the market
and even access remote communities without large capital
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