Will Avon (AVP) Continue with its Distressed Earnings in Q2? - Analyst Blog


Avon Products Inc. ( AVP ), the global beauty company, is slated to report its second-quarter 2014 results on Jul 31, 2014. In the last quarter, it posted a negative earnings surprise of 40%. Let's see how things are shaping up for this announcement.

Factors Affecting the Upcoming Quarter

Avon Products remains in troubled waters due to continuous loss of active representatives, declining volume, unfavorable exchange rates and reducing margins in mature markets like North America. This has led to the company's distressed operating results over the past few quarters. While the company is striving to revive its business through its strategic initiatives formulated in Nov 2012, we believe that it will take time for these initiatives to turnaround operating performance.

Focused on accelerating top-line growth, trimming costs and improving working capital to recover it from the ongoing challenges, the troubled beauty company last month announced that it will lay off another 600 employees globally, which will likely incur net charges of nearly $45-$50 million (before tax) from these initiatives. Of this, it expects $40 million to be recorded in the second quarter of 2014.

Given the ongoing mess in the door-to-door cosmetics seller's quarterly performance along with the recently announced lay off charges, we remain apprehensive of the company's second quarter 2014 results.

Earnings Whispers?

Our proven model does not conclusively show that Avon Products is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here, as you will see below.

Negative Zacks ESP: ESP for Avon Products is -4.76%. This is because the Most Accurate estimate stands at 20 cents, while the Zacks Consensus Estimate is pegged at 21 cents.

Zacks Rank #3 (Hold): Avon Products' Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise call. We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into earnings announcement, especially when the company is undergoing negative estimate revisions.

Stocks That Warrant a Look

Here are some other companies you may want to consider as our model shows they have the right combination of elements:

Avis Budget Group Inc. ( CAR ) has an Earnings ESP of +3.18% and a Zacks Rank #2 (Buy).

Archer Daniels Midland Co. ( ADM ) has an Earnings ESP of +5.26% and a Zacks Rank #2.

Colgate-Palmolive Co. ( CL ) with an Earnings ESP of +1.37% and a Zacks Rank #2.

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AVON PRODS INC (AVP): Free Stock Analysis Report

ARCHER DANIELS (ADM): Free Stock Analysis Report

AVIS BUDGET GRP (CAR): Free Stock Analysis Report

COLGATE PALMOLI (CL): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: AVP , ADM , CAR , CL



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