North America Woes Affect Avon Earnings - Analyst Blog
The global beauty company, Avon Products Inc's ( AVP ) adjusted earnings of 14 cents per share for third-quarter 2013 missed the Zacks Consensus Estimate of 19 cents and declined 22.2% from the year-ago quarter's earnings of 18 cents. The decline mainly resulted from the prevailing macroeconomic woes and weak performance at some of the company's segments, primarily North America.
Moreover, on a reported basis, the company posted a loss of 1 cent per share compared with earnings of 8 cents in the year-ago comparable quarter.
Total revenue for the quarter declined 7% year over year to $2,322.9 million compared with $2,510.6 million a year ago. On a constant currency basis, total revenue dipped 1% year over year.
Further, total revenue missed the Zacks Consensus Estimate of $2,422.0 million. During the quarter, the company registered an increase of 6% in price/mix, while active representatives and total units declined 3% and 7%, respectively.
Avon, which competes with Inter Parfums Inc . ( IPAR ), Nu Skin Enterprises Inc. ( NUS ) and Coty Inc. ( COTY ), registered a 9% revenue decline in its Beauty Products and 7% decline in Fashion & Home revenues.
Adjusted gross margin of this Zacks Rank #3 (Hold) company expanded 180 basis points year over year to 63.1%, on account of favorable mix and pricing in Latin America.
Adjusted operating margin contracted 80 basis points to 5.4%, attributable to revenue decline related to fixed expenses and increased carrying costs, primarily in Latin America. Other factors impacting operating margin were elevated representatives and sales leader investments to support new product launches in Brazil, offset by gross margin gains.
In the quarter, Avon's revenues in Latin America fell 5% year over year to $1,207.7 million, while it rose 6% on a constant-dollar basis. Revenue growth on a constant dollar basis resulted from tax credits recognized in Brazil as well as an increase in average order and new product launches. On a currency neutral basis, revenue increased 13% in Brazil and 15% in Venezuela, while it declined 7% in Mexico. Units sold were down 6% during the quarter, while Active Representatives dipped 1% year over year.
In North America , sales skidded 19% year over year to $328.6 million, mainly due to a fall in Active Representatives. On constant dollars basis, revenue was down 18%. Units sold for the region waned 15% year over year, while Active Representatives slipped 16%. Regional Beauty sales fell 20% due to weakness in skincare and fragrance sales, while Fashion & Home sales were down 16%.
The beauty product manufacturer's revenue of $619.2 million in Europe, the Middle East and Africa were flat year over year. However, on a currency neutral basis, revenue rose 2% driven by increased average order, offset by decline in Active Representatives. Regional breakup shows that sales declined in all regions with Russia and U.K. down 4% each, Turkey down 13% and South Africa down 1%. Avon registered a 1% decline in Active Representatives, while units sold remained flat.
The Asia-Pacific division's revenue dipped 22% to $167.4 million, while constant dollars revenue declined 19%. The region marked a 10% decline in Active Representatives and a 24% fall in units sold. Country wise, the region recorded a 67% and 9% revenue decline in China and Philippines, respectively.
Other Financial Details
The leading global beauty company exited the quarter with cash and cash equivalents of $808.3 million, long-term debt (excluding current maturities) of $2,541.2 million, and shareholders' equity of $1,127.6 million.
Moreover, prior to the earnings release, the company announced a quarterly dividend of 6 cents, payable on Dec 2, 2013 to shareholders of record as on Nov 15.
Headquartered in New York City, Avon directly sells cosmetics, fragrances, toiletries, jewelry, and accessories. The company markets globally through more than 6.2 million independent sales representatives and is the world's largest direct seller of beauty products.
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