Avon Products Inc. ( AVP )
continued to disappoint for the sixth straight quarter, posting
poorer-than-expected sales and earnings results for the third
quarter of 2012. The company's adjusted earnings per share dipped
55.2% year over year to 17 cents and also fell short of the Zacks
Consensus Estimate of 23 cents per share.
On a reported basis, earnings plummeted 81.6% to 7 cents per share
compared with 38 cents recorded in the year-ago quarter.
Total revenue declined 7.7% year over year to $2,550.9 million
compared with $2,762.4 million a year ago. Moreover, total revenue
missed the Zacks Consensus Estimate of $2,591 million. Flat
price/mix as well as a meager 1% increase in total units mainly
contributed to the decline in top line. Adding to the mess, the
company's active representatives registered a 1% decline.
Avon registered a revenue decline in its Beauty Products and
Fashion categories, where sales decreased 9% and 2%, respectively.
The decline in Beauty revenue was driven by short falls in its
color, skincare, fragrance and personal care products. The
company's Home products category posted revenue of $245.3
million.
Avon's adjusted gross margin fell 280 basis points year over year
to 61.2%, on account of the negative impact of product mix and
pricing, higher supply chain costs as well as unfavorable foreign
exchange. Adjusted operating profit dwindled 46.5%, while operating
margin contracted 440 basis points to 5.9%, attributable to lower
gross margin along with higher overhead costs.
Region-wise Performance
Avon delivered 6% revenue decline in Latin
America , primarily due to a 19% decline in Brazil,
partially offset by a 1% and 6% rise in Mexico and Venezuela. Units
sold were up 5% during the quarter, while Active representatives
showed an augmentation of 2% year over year.
In North America , sales skidded 8% year over
year. The North American Business, excluding Silpada, was down 6%
on account of decline in Active Representatives. At Silpada, sales
were down 25% as average orders as well as Active Representatives
declined. Units sold for the region waned 10% year over year, while
Active Representatives slipped 12%.
The beauty product manufacturer's revenues in Europe,
Middle East and Africa fell 11% year over year, primarily
due to lower average orders, offset by an increase in Active
Representatives. Regional breakup shows that sales were down in
every operating region with Russia and Turkey down 9%, U. K. down
25%, and South Africa down 14%. Avon registered a 5% increase in
Active Representatives, while units sold were up by 2% during the
quarter.
The Asia-Pacific division witnessed an 8% dip in
revenues. The region marked a 12% decline in Active representatives
and a 7% fall in units sold. Country-wise, the region recorded a 6%
revenue increase in Philippines, largely offset by a 31% decline in
China.
Other Financial Details
The leading global beauty company exited the quarter with cash and
cash equivalents of $1,097.5 million, long-term debt (excluding
current maturities) of $2,628.3 million, and shareholders' equity
of $1,466.6 million.
During the nine-month period ended September 30, 2012, the company
earned net cash of $219.6 million for operational activities as
against $247.2 million in the prior-year comparable period. Avon
expended $134.9 million in capital expenditure during the
period.
Future Outlook
Keeping in view the challenges the company is encountering,
management has now outlined some strategic measures that are
focused on accelerating top-line growth, trimming down costs and
bettering working capital. Management is continually looking to
ease business issues and direct the company towards the growth
trajectory, bringing back its competitive position among peers like
Revlon Inc. ( REV
).
In a drive to attain this stature, management has set a mid
single-digit constant-dollar revenue growth and a low double-digit
operating margin target over the next three years. Further, the
company targets to save costs by at least $400 million by the end
of these three years by cutting down on its Selling, General and
Administrative (SG&A) expenses.
Moreover, earlier this morning, the company cut its quarterly
dividend by 6 cents per share to 23 cents per share, in accordance
with its previous announcement of re-evaluating its capital
structure. Management believes this reduction in dividend together
with efforts to improve working capital should ease the financial
pressures on the company.
Avon currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Our long-term recommendation on the stock
is Underperform.
AVON PRODS INC (AVP): Free Stock Analysis
ReportREVLON INC-A (REV): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment
Research