Avon Misses Estimates but Grows - Analyst Blog
July 28 2011 - 7:24AM
Zacks
Avon Products Inc. (AVP) recently posted
second-quarter 2011 adjusted earnings of 49 cents a share, which
barely missed the Zacks Consensus Estimate of 50 cents a share but
gained 4.3% from the year-ago figure of 47 cents a share.
On a reported basis, including one-time items, earnings jumped
23.7% to 47 cents per share from 38 cents per share in the year-ago
quarter.
Total sales of the company rose 8.0% year over year to $2,856.4
million compared with $2,628.5 million a year ago. Total revenue
also marginally missed the Zacks Consensus Estimate of $2,894.0
million.
The company’s beauty product sales increased 8.0%, driven by
growth of 11% in fragrance, 8% in color, 3% in skincare and 11% in
personal care.
Sales by Region
Avon delivered 19% revenue growth in Latin America, primarily
driven by a 1.0% increase in units sold and a 17.0% rise in Brazil,
along with an impressive 27.0% growth in Mexico and 15% in
Venezuela. Active representatives also grew 4.0%.
In North America, sales decreased 7.0% year over year, pulled
down by a 16.0% decline in units sold, which was partially
countered by revenue gains in Silpada, improving 7%, while active
representatives fell 8.0%.
The beauty product maker’s revenues in Western Europe, Middle
East and Africa surged 13.0% year over year, elevated by an 8.0%
growth in active representatives and 3% rise in units. U.K revenue
grew 2% while South Africa delivered a strong 52% growth. Turkey
grew 1%.
Macroeconomic pressures continued to hamper Central and Eastern
Europe revenue, which still managed to record a 5% growth in
revenues in the quarter despite a 2% fall in unit volume. The
region marked a 1.0% decline in active representatives.
The Asia-Pacific division witnessed a decrease of 5.0% in
revenues, attributable to a sizeable 10.0% fall in units sold.
Active representatives also declined 14.0% during the quarter.
China proved to be a major disappointment with revenues sliding
282.0% during the quarter. However, Philippines mitigated the fall
in revenue to a small extent by reporting an increase of 7%.
Margin Contraction
Avon’s adjusted gross margin fell 30 basis points year over year
to 64.4% as favorable currency impact and improved pricing
partially offset by higher product cost and an adverse product mix.
Operating profit also jumped 5.8% while operating margin contracted
30 basis points to 11.5%. Lower gross margin contributed to the
decrease.
Other Financial Details
The leading global beauty company exited the quarter with cash
and cash equivalents of $1,011.0 million, long-term debt of
$2,417.3 million, and shareholders’ equity of $2,038.3 million.
The company provided cash from operations of $88 million in the
six months ended June 30, 2011 versus $232 million of cash from
operating activities in the same period last year. The company
expended $144.5 million in capital expenditure for the quarter.
Guidance
Riding on the success of the second quarter, the company noted
that strong field programs should result in mid single-digit
constant dollar revenue growth for the rest of fiscal 2011. The
company also anticipates operating margin to expand in the second
half of fiscal 2011, triggered by higher gross margins and
revenue.
Avon Products is a leading global beauty company and, as the
world's largest direct seller of beauty and related products,
targets women consumers in over 100 countries through 6.2 million
independent sales representatives. The company also derives a
substantial portion of its revenue from high-growth emerging
markets, which offer a significant future upside potential.
Worldwide, Avon competes against products sold to consumers by
other direct-selling and direct-sales companies and through the
Internet and against products sold in the mass market and through
prestige retail channels. The company competes head-to head with
Revlon Inc. (REV).
Avoncurrently retains a Zacks #2 Rank, which translates into a
short-term Hold rating. Our long-term recommendation on the stock
is Neutral.
AVON PRODS INC (AVP): Free Stock Analysis Report
REVLON INC-A (REV): Free Stock Analysis Report
Zacks Investment Research
Avon Products (NYSE:AVP)
Historical Stock Chart
From Jun 2024 to Jul 2024
Avon Products (NYSE:AVP)
Historical Stock Chart
From Jul 2023 to Jul 2024