Global cosmetics company Avon Products (AVP – Analyst Report) has been facing a lot of headwinds of late as it works through a major restructuring of its business. Its loss worsened in the first quarter, leading analysts to cut their estimates and sending the stock back to a Zacks Rank #5 (Strong Sell).
About the Company
Headquartered in New York, Avon is the world’s largest direct seller with more than 6 million active independent sales representatives. Avon products, which are available in over 100 countries, include color cosmetics, skincare, fragrance, fashion and home products, under brand names like Avon Color, ANEW, Skin-So-Soft and Advance Techniques.
The company reported a loss of $165.9 million, or $0.38 per share for the first quarter, compared with a loss of $147.3 million, or $0.33 per share, in the first quarter of 2015. Adjusted loss per share of $0.07 per share was substantially worse compared with earnings of $0.03 per share in the year-ago quarter. The Zacks Consensus Earnings Estimate was $0.02 per share.
The company has missed in three out of last four quarters, with an average negative quarterly surprise of 188%!
Foreign currency headwinds and ongoing deconsolidation of Venezuela operations hurt results. Shares fell about 3% after the results.
The following chart shows the negative earnings and price momentum for AVP:
The company reports its second quarter results on August 2.
Reducing Head Count; Moving Headquarters
Following the sale of its North American operations to Cerberus Capital Management, the company decided to move its headquarters to the United Kingdom, over time. However it will continue to be incorporated in New York and trade on the NYSE. It will also maintain its current facilities in New York.
Earlier in March, the company has announced a strategic partnership with Cerberus for separation of its North America business into a private company, majority owned and managed by Cerberus. They also announced they would reduce their headcount by about 7%.
Better Play in the Industry?
Cosmetics industry is currently ranked 49 out of 265 Zacks industries (top 18%). Investors could look at a better ranked stock in the industry—Coty (COTY)—which carries a Zacks Rank #1 (Strong Buy) as of now.
The Bottom Line
In view of the ongoing execution of its turnover plan, the outlook for the company remains cloudy. It remains to be seen whether the company will be able to successfully execute its restructuring plan. In addition to the Zacks Rank of 5, the stock has Zacks Style Score of “F” for Value and “D” for Growth and Momentum, resulting in a VGM Score of “F”. In view of the uncertainty, investors should avoid this stock for the time being.
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