Leading beauty and cosmetic goods company, Avon Products, Inc.AVP is slated to release third-quarter 2017 results on Nov 2, before the market opens. The question lingering in investors' minds is, whether the company will be able to reverse its negative earnings surprise trend in the quarter to be reported.
Markedly, the company has lagged both sales and earnings estimates for the last four quarters now.
Let's delve deeper how things are shaping up for this announcement.
Which Way are Estimates Treading?
In order to get a clear picture of what analysts are thinking about the company right before earnings release, let's have a look at the earnings estimate revisions. The Zacks Consensus Estimate for the quarter under review has been stable over the past 30 days and is pegged at 7 cents, up from 2 cents reported in the year-ago quarter.
Avon Products, Inc. Price, Consensus and EPS Surprise
Analysts polled by Zacks expect revenues of $1.4 billion, in line with the prior-year figure. Furthermore, the Zacks Consensus Estimate for revenues in the Europe, the Middle East & Africa, and Asia-Pacific segments are pegged at $485 million and $124 million, respectively. While the estimate for the Europe, the Middle East & Africa segment shows a year-over-year increase of 1.9%, the same for the Asia-Pacific segment reflects a decline of 7.3% from the quarter a year ago.
Factors at Play
Apart from having a dismal surprise history, Avon has been struggling with waning Active Representatives for quite some time. In fact, in the most recent quarter, Active Representatives and Ending Representatives declined across all the segments, barring Ending Representatives growth in North Latin America. While Active Representatives declined 3% on a year-over-year basis, Ending Representatives dipped 2% in the last quarter.
Additionally, operating margins were hampered by constant-dollar revenue decline resulting in deleveraged fixed expenses, higher bad debt expense particularly in Brazil, increased Representative, sales leader and field expenses, elevated transportation costs mainly in Russia, and investments in advertising for product launches.
Also, Avon faces competition from various products and product lines in both domestic and international markets. Meanwhile, consumer preferences and spending patterns for beauty products along with currency headwinds are weighing upon Avon's performance and hurting its overall profitability.
Notably, these factors have hurt the company's share price, which plunged 51.5% in the last six months, as against the industry 's gain of 9.4%.
Nonetheless, we remain encouraged by the company's Transformation Plan that seems to be on track. With significant progress on enhancing cost structure and improving financial flexibility, Avon is now keen on investing in growth by implementing strategies and drive profitable growth.
Of late, the company has witnessed significant progress against its targets of enhancing cost structure and improving financial resilience, and is at the second year of its three-year Transformation Plan. These savings have considerably aided in countering inflation. Per Avon, this will help it attain the long-term goal of delivering low-double digit operating margin and constant-dollar revenue growth in the mid-single digits.
Moreover, the company is undertaking strategic endeavors to boost the overall Representative experience. Though the Active Representatives disappointed in the second quarter, the company believes that its plan remains on track to deliver 1-2% growth in the long term.
What the Zacks Model Unveils?
Our proven model shows that Avon 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 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Avon has the right combination of the two key components.
Notably, Avon has an Earnings ESP of +2.94% with a Zacks Rank #2, making us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Other Stocks With Favorable Combination
Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:
Nomad Foods Limited NOMD has an Earnings ESP of +8.70% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .
Nu Skin Enterprises, Inc. NUS has an Earnings ESP of +0.44% and a Zacks Rank #3.
Blue Buffalo Pet Products, Inc. BUFF has an Earnings ESP of +0.58% and a Zacks Rank #3.
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