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What's in the Offing for Avon (AVP) This Earnings Season?

Avon Products, Inc.AVP is slated to release third-quarter 2018 results on Nov 1. The question lingering in investors' minds is whether this leading cosmetics retailer will be able to deliver an earnings beat in the upcoming quarter.

The company exhibited a dismal earnings trend, having lagged estimates in nine out of the last 12 quarters. Further, it recorded an average negative earnings surprise of 89.3% in the trailing four quarters.

The Zacks Consensus Estimate for third-quarter earnings is pegged at 1 cent, reflecting a 66.7% decline from 3 cents reported in the year-ago quarter. Estimates were unchanged in the last 30 days. Moreover, the consensus mark for revenues is pegged at $1.31 billion, down 7.4% from the prior-year figure.

Avon Products, Inc. Price, Consensus and EPS Surprise

Avon Products, Inc. Price, Consensus and EPS Surprise | Avon Products, Inc. Quote

Let's find out how things are shaping up for this announcement.

Factors at Play

Avon has been witnessing sales decline for the last few years on account of slowed Representatives growth. Consequently, the company has been focusing on boosting growth of Representatives, which is a key factor for the success of any direct-selling business.

Notably, Avon is in the third year of its three-year Transformation Plan. It was announced in January 2016. The plan primarily focuses on investment for growth, enhancement of cost structure and improvement of financial flexibility. In 2018, the company remains on track to achieve cost savings of $65 million, with roughly $15 million generated in the second quarter. Recently, management achieved a milestone in the transformation of its service supply chain - including digital advancements, leadership appointments and operational updates.

Management is likely to focus on business foundations and improve overall performance to attain its savings target. Furthermore, the company anticipates achieving the long-term target of delivering mid-single-digit constant-dollar revenue growth and low-double-digit operating margin.

Avon has also made significant improvements in servicing its Representatives across the globe by enhancing delivery and service, besides improving satisfaction and retention levels. Consequently, the company is on track to deliver 1-2% Active Representatives growth in the long term by revamping the experience of its 6 million Beauty entrepreneurs.

Driven by these efforts, the Avon stock has surged 18.3% in the past three months against the industry 's decline of 7.9%.

Though the aforementioned efforts are commendable, the company's disappointing sales trend cannot be ignored. In the second quarter of 2018, the top line was impacted by lower Active Representatives - mainly in Brazil, Russia and Mexico - along with challenges in key markets, particularly in Brazil. Further, negative impact due to the trucker strike in Brazil hurt sales.

While management has been aggressively trying to boost Representatives, this might take some time. The company expects modest improvement in revenue trends in the second half of 2018. However, it believes that there is a lot of work to be done to restore the business to top-line growth.

Given the company's pros and cons, let's see whether Avon's Transformation Plan and growth strategies can offset headwinds and deliver earnings beat in the to-be-reported quarter.

Zacks Model

Our proven model does not conclusively show that Avon is likely to beat earnings estimates in the second quarter. This is because a stock needs to have both - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) - for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Avon has an Earnings ESP of 0.00% and a Zacks Rank #3. This combination makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Archer Daniels Midland Company ADM has an Earnings ESP of +3.85% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Ralph Lauren Corp. RL has an Earnings ESP of +0.23% and a Zacks Rank of 2.

The Estee Lauder Companies Inc. EL has an Earnings ESP of +1.19% and a Zacks Rank #3.

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Avon Products, Inc. (AVP): Free Stock Analysis Report

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Ralph Lauren Corporation (RL): Free Stock Analysis Report

Archer Daniels Midland Company (ADM): 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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