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Avon (AVP) Touches 52-Week Low: Time to be Cautious?

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Shares of Avon Products Inc.AVP reached a new 52-week low of $3.00 yesterday, before closing trade a notch higher at $3.05, plunging roughly 66.4% year-to-date. The company's momentum has been gradually softening due to continuous loss of active representatives, declining volume, unfavorable foreign currency translations and reduced margins in mature markets like North America.

The company's performance faltered in third-quarter 2015 as both top and bottom lines fell year over year. Avon's dismal performance was mainly due to continued pressure from a volatile currency backdrop and a tough macroeconomic environment.

The company has further narrowed its 2015 guidance for sales and margins, to account for the anticipated increase in negative currency translation effect and adverse impact from additional VAT taxes in Brazil.

Bearing the impact of Liz Earle's sale, the company expects revenues to remain flat, on a currency neutral basis. However, based on the foreign currency spot rates, management now anticipates 2015 total revenue to bear a negative impact of nearly 19 percentage points from foreign currency translations, compared with 17 percentage points expected earlier.

Additionally, the company now expects constant dollar adjusted operating margin for the year to contract 100 basis points compared with a 50 basis points decline projected earlier. Also, it expects adjusted operating income, in dollar terms, to decline 300 basis points year over year, compared with 200 basis points decline estimated earlier. These factors, coupled with a Zacks Rank #5 (Strong Sell) further confirms weakness in Avon.

Further, the estimates for Avon have been displaying a downtrend due to the aforementioned reasons. It seems that analysts have become less constructive on the stock's future performance. This is evident from the Zacks Consensus Estimate for 2015 that tumbled to 14 cents from 34 cents over the past 7 days. For 2016, the Zacks Consensus Estimate slid to 32 cents from 45 cents over the same time frame.

Moreover, over the last five years, Avon has witnessed a declining revenue trend in North America, especially in the U.S., mainly due to a decrease in active representatives. Management is concerned about this rapid decrease and hence, has been constantly striving to stabilize the situation.

However, this global beauty company is focused on implementing strategic measures to boost its top line and working capital, in an attempt to drive performance. Also, it has been consistently working on its long-term targets of reducing costs and boosting fundamentals. But to what extent these initiatives will boost its performance remains a question.

Stocks that Warrant a Look

Some better-ranked stocks in the same industry include Inter Parfums Inc. IPAR , Coty Inc. COTY and Helen of Troy Limited HELE . While Inter Parfums sports a Zacks Rank #1 (Strong Buy), Coty and Helen of Troy carry a Zacks Rank #2 (Buy).

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AVON PRODS INC (AVP): Free Stock Analysis Report

INTER PARFUMS (IPAR): Free Stock Analysis Report

COTY INC-A (COTY): Free Stock Analysis Report

HELEN OF TROY (HELE): Free Stock Analysis Report

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


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

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