We are maintaining our long-term 'Underperform' recommendation
Avon Products Inc.
. This New York-based cosmetics giant posted disappointing
results for the sixth straight quarter and recorded
lower-than-expected sales and earnings for the third quarter
Dismal Quarterly Performance Drags Estimates Down
Weak sales and higher input and operating costs continued to
weigh on the bottom-line performance of the company. The
company's adjusted earnings per share plunged 55.2% year over
year to 17 cents and also fell short of the Zacks Consensus
Estimate of 23 cents per share. Total revenue declined 7.7% year
over year to $2.551 billion while missing the Zacks Consensus
Estimate of $2.591 billion.
We believe Avon's shift of focus from representative growth,
technological upgradation and lack of attention towards
commercial sales and unfavorable product mix were the reasons
behind its stalled performance. As a result, the company reported
a decline in its revenue in every region it operates.
Following dismal bottom-line performance for the third quarter
of fiscal 2012, the Zacks Consensus Estimates has been showing a
downward trend. For 2012 and 2013, the Zacks Consensus Estimate
dropped by 7 cents and 8 cents to 76 cents and 92 cents per share
in the last 60 days, respectively.
Negative Earnings Surprise History
Avon has missed the Zacks Consensus Estimate in the trailing
six quarters in the range of negative 64.3% to negative 2.0%. The
average surprise over the last six quarters remained negative at
Risk of Operating in Overseas Market
Avon's financial performance may be substantially affected by
its significant presence in international market (81% of total
revenue in fiscal 2011), which exposes it to unfavorable foreign
currency translations, economic or political instability and
other governmental actions on trade and repatriation of foreign
Avon faces competition from various products and product lines
both domestically and internationally. The beauty and
beauty-related products industry is highly competitive and the
number of competitors and degree of competition in this industry
varies widely from country to country. Worldwide, Avon competes
against products sold to consumers by other direct-selling and
direct-sales companies and through the Internet and against
products sold through the mass market and prestige retail
Based on the above analysis, we anticipate Avon to perform
below its peers. Therefore, we see little reasons for the
investors to own this stock. Avon, which competes with
), carries a Zacks #5 Rank, implying short-term Strong Sell
rating for the next 1-3 months.
AVON PRODS INC (AVP): Free Stock Analysis
REVLON INC-A (REV): Free Stock Analysis
To read this article on Zacks.com click here.