Avon's 1Q Misses on Higher Costs - Analyst Blog
May 01 2012 - 4:25AM
Zacks
Avon Products Inc. (AVP) recently posted
first-quarter 2012 adjusted earnings of 10 cents a share, missing
the Zacks Consensus Estimate of 28 cents a share. Moreover, the
results decreased nearly 73% from the year-ago earnings of 37 cents
a share, primarily due to higher input cost inflation coupled with
higher labor costs and increased operating expenses.
On a reported basis, including one-time items, earnings fell
81.8% to 6 cents per share compared with earnings of 33 cents in
the year-ago quarter.
During the quarter, the company’s net sales inched down 2% year
over year to $2,575.4 million compared with $2,629.1 million a year
ago. The decline in sales was mainly attributable to a fall of 1%
in total units, partially offset by benefit from favorable price
mix. However, net sales beat the Zacks Consensus Estimate of $2,519
million.
Avon registered a revenue decline in every category of products
with fashion products dropping 8%, followed by a fall of 2% and 1%
in the company’s Home and Beauty Products categories,
respectively.
Sales by Region
Avon delivered 1% revenue growth in Latin
America, primarily driven by an increase of 2% and
26% in Mexico and Venezuela, respectively, partially offset by a 4%
decline in Brazil. Units sold inched down 1% during the
quarter, while Active representatives grew 2% year over year.
In North America, sales decreased 4%
year over year, down 2% in US business, while active
representatives fell 10%. However, units sold in the region during
the quarter inched up 1% year over year.
The beauty product maker’s revenues in Western
Europe, Middle East and Africa plummeted 5% year over
year, primarily due to weak performances in the U.K and Continental
European region. Avon registered a 4% fall in active
representatives, while units sold were up by 2% during the
quarter.
Intense competitive pressures continued to hamper
Central and Eastern Europe revenue, which
recorded a 4% drop in the quarter along with a 5% fall in unit
volume. The region marked a 1% drop in active representatives and a
1% revenue decline in Russia.
The Asia-Pacific division witnessed a 2% decline in revenues.
The region marked 9% decline in Active representatives and 3% fall
in units sold.
Margin Contraction
Avon’s adjusted gross margin fell 310 basis points year over
year to 60.8%, primarily due higher product costs, increased labor
costs, and unfavorable foreign currency translation effect and
product mix. Adjusted operating profit reflected a decline of
71.6%, while operating margin contracted 610 basis points to 3.8%
attributable to lower sales and gross margin and higher operating
expenses.
Other Financial Details
The leading global beauty company exited the quarter with cash
and cash equivalents of $1,215.2 million, long-term debt (excluding
current maturities) of $2,201.8 million, and shareholders’ equity
of $1,636.1 million.
During the three-month period ended March 31, 2012, the company
uses a net cash of $33 million for operational activities versus
$31.6 million in the same period last year. The company expended
$45.7 million in capital expenditure.
Guidance
Battered by continuous wretched quarterly performance and
macroeconomic pressures, the company is actively focusing on its
top-line growth, cash generation and cost management in the current
fiscal with least focus on margin recovery, reflecting a year of
changeover for Avon.
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 6.4 million
independent sales representatives. The company also derives a
substantial portion of its revenue from high-growth emerging
markets, offering a significant future upside potential.
Globally, Avon competes against products sold to consumers by
other direct-selling companies and direct-sales through the
Internet and against products sold in the mass market and through
prestige retail channels. The company faces stiff competition from
Revlon Inc. (REV).
Avon currently retains a Zacks #4 Rank, which translates into a
short-term Sell 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
To read this article on Zacks.com click here.
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