The middle class may be
emerging around the world
, but that doesn't mean it has to buy American. Avon Products
) released its quarterly results on May 1, and there's no packaging
that can make these numbers pretty.
[caption id="attachment_58742" align="alignright" width="240"
caption="Avon is taking a beating in Brazil"]
Sales decreased 2%
to $2.6 billion. Gross margin was down due to commodity prices,
rising labor costs, and foreign exchange issues. Net income dropped
a stunning 82% for the quarter, from $143.6 million to $27.6
Avon CFO Kimberly Ross called the company's performance
"challenged," but claims that the company is making progress
towards addressing its operational issues.
Bernstein Research analyst Ali Dibadj told Reuters that
Avon's margins were a "disaster,"
citing labor and promotional costs in Brazil, Argentina, Venezuela,
and Russia. "It goes to show how much they have to spend back to
grow just 1%," he said.
Avon's numbers show that the company is not competing well in
its largest market of Latin America. Sales growth was all but
stalled at $1.1 billion, a 1% increase, and operating profit fell
64% to $50 million. While sales were down 4% in Central and Eastern
Europe, they were still more profitable than Latin America, where
operating profit was down 19% to $65 million.
Avon's Latin American division is almost three times the size of
its Central and Eastern Europe division, but makes less money.
Avon has a new CEO promising change and renewed growth, but
investors are beating a path to the exits. The company's stock
dropped 9% on May 1 to close at $19.87. Given the fundamental
structural problems revealed in Latin America, it's hard to see
them coming back any time soon.