Avon Products Inc.
), the world's largest direct seller of beauty and related
products, is slated to release its first-quarter 2012 results on
Tuesday, May 1, 2012, before the market opens. The current Zacks
Consensus Estimate for the first quarter stands at 28 cents per
share, indicating an estimated year-over-year decline of about
24.3%. Revenue, as per the Zacks Consensus Estimate, is $2,526
The earnings surprise scenario at Avon was disappointing due to
the company's weak top line and higher costs. The company has
missed the Zacks Consensus Estimate in the last three out of four
quarters with the average surprise for the trailing four quarters
remaining at negative 6.3%.
Fourth Quarter Synopsis
Avon Products Inc. posted fourth-quarter 2011 adjusted earnings
of 39 cents a share, missing the Zacks Consensus Estimate of 51
cents a share. Moreover, the results decreased over 51% from the
year-ago earnings of 59 cents a share, primarily due to higher cost
inflation coupled with increased operating expenses. On a reported
basis, including one-time items, earnings fell 100% to zero cents
per share compared with earnings of 50 cents in the year-ago
For full fiscal 2011, earnings declined almost 10% to $1.64 per
share from the previous fiscal earnings of $1.80, missing the Zacks
Consensus Estimate of $1.76. On a reported basis, including
one-time items, earnings fell nearly 12% to $1.20 per share
compared with $1.36 in the previous fiscal.
During the quarter, the company's total sales declined over 4%
year over year to $2,997.9 million compared with $3,137.8 million a
year ago. The decline in revenue was mainly attributable to a fall
of 2% in total units, partially offset by benefit from favorable
price and product mix. Besides, total revenue also missed the Zacks
Consensus Estimate of $3,102 million.
Agreement of Estimate Revisions
For the first quarter of fiscal 2012, none of the 13 analysts
made positive revisions while 2 of them moved their estimates
downwards in the last 30 days. Estimates for fiscal 2012 also
witnessed a similar trend with no upward revision to estimates and
1 downward movement, in the last 30 days.
In the last 7 days, no movement in estimates has been noticed in
either direction for first-quarter 2012 or fiscal 2012. This
indicates that the analysts do not see any major catalyst driving
the quarterly results.
Magnitude - Estimate Trends
Withstanding the fewer negative movements in estimates in the
last 30 days and no revisions in the last 7 days, the Zacks
Consensus Estimate for the first quarter and fiscal 2012 remained
intact in both periods. The Zacks Consensus Estimates for
first-quarter 2012 remains at 28 cents per share and $1.50 per
share for fiscal 2012.
Thus, the magnitude of estimate revisions for Avon Products
depicts a neutral outlook for the upcoming quarter and fiscal
Avon is in the midst of a multi-year restructuring program that
primarily accelerates investments toward targeted growth
opportunities, streamlines worldwide manufacturing operations, and
improves cost effectiveness while enhancing organizational
effectiveness. The restructuring program is expected to deliver
annualized savings of more than $430 million when fully implemented
Recently, Avon built a $150.0 million state-of-the-art
distribution site in Cabreuva, Brazil, which has the capacity to
ship 70% of Brazil's overall unit volume. The new distribution
center has a feature of advanced order picking technology, which
will help in improving productivity and order accuracy.
We believe that the company's initiatives to change the product
mix and reposition the business in the U.S. market will require
significant expenditure to support increased advertising and
promotional activities, which may dent its margins. Furthermore,
Avon is a highly leveraged company, limiting its financial
flexibility to drive future growth.
The company also faces stiff competition from other
direct-selling companies as well as companies selling through
prestige retail channels. One of the prime competitors of Avon is
Avon currently retains a Zacks #4 Rank, which translates into a
short-term 'Sell' rating. Our long-term recommendation on the stock
We remain hopeful of Avon's ongoing restructuring initiatives
and expectations of robust results from its new distribution
facility in Brazil. However, our neutral outlook on the stock
resulted from the company's wretched fourth-quarter performance,
sluggishness in the North American market, and expectations of poor
margins as well as macroeconomic issues.
AVON PRODS INC (
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