Avon Products Inc.
), 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
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
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
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. (
) has an Earnings ESP of +3.18% and a Zacks Rank #2 (Buy).
Archer Daniels Midland Co. (
) has an Earnings ESP of +5.26% and a Zacks Rank #2.
Colgate-Palmolive Co. (
) with an Earnings ESP of +1.37% and a Zacks Rank #2.
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