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Find Out What's Behind the Doom of Avon (AVP) Stock

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Dismal earnings trend and fall in Active Representatives have been major concerns for Avon Products Inc. , which has been losing investor confidence. Further, the company’s strained margins and high bad debt expenses indicate that the troubles for this beauty products company are far from over.

Scoring low on investor confidence, the company has witnessed steep fall in stock price lately. Evidently, it lost as much as 36.8% in the last six months, against the industry’s growth of 23.4%. Further, this Zacks Rank #5 (Strong Sell) company’s Momentum Score of F suggest that the stock is not likely to pick up any time soon. That said, let’s get a more detailed picture of the troubles for Avon.



Surprise Trend Hurt by Waning Active Representatives

Avon’s troubles are not very new. The company has been displaying a dismal earnings trend for the past five quarters. Though sales outpaced estimates in third-quarter 2017, it had lagged in the preceding four quarters. The dismal performances can primarily be attributed to waning Active Representatives, which declined 3% in the most recent quarter. Additionally, we note that Active Representatives have been consistently recording a decline of 3% for the trailing four quarters. The fall in Active Representatives is due to decline in all segments.

Avon Products, Inc. Price, Consensus and EPS Surprise

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

Strained Margins

Apart from soft top and bottom-line results, Avon has been witnessing strained margins over the past few quarters. Notably, the company’s operating margin contracted 70 basis points (bps), 230 bps and 130 bps in the third, second and first quarters of 2017. The decline in operating margin mainly stemmed from higher bad debt expenses, particularly in Brazil. Additionally, increased Representative, sales leader and field expenses have been hurting margin growth in the last two quarters.

Bleak Outlook

While Avon expects modest growth in fourth-quarter 2017 backed by favorable trends in various markets, it projects results to fall short of expectations in 2017. The company now anticipates both constant-dollar revenues and adjusted operating margin in the band of flat to slightly up compared with the prior-year period.

Though management remains focused to drive growth through innovations, solid team execution, improving Representative experience, we believe it will take time to realize the benefits from its strategies.

Competition to Take a Toll on Results

Avon faces intense competition from other cosmetics products retailer in domestic and international markets. Changing market trends and evolving consumer preferences might also weigh upon the performance and hurt overall profitability.

Not Done Yet? Check These Trending Cosmetics Stocks

Investors can count on top-ranked stocks in the same industry including The Estee Lauder Companies Inc. (EL - Free Report) , Helen of Troy Limited (HELE - Free Report) and Nu Skin Enterprises, Inc. (NUS - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Estee Lauder, with a long-term earnings growth rate of 12.5%, has pulled off an average positive earnings surprise of 18% in the trailing four quarters.

Helen of Troy, with a long-term earnings growth rate of 2.3%, has come up with an average positive earnings surprise of 17% in the trailing four quarters.

Nu Skin, with a long-term earnings growth rate of 8.8%, has delivered an average positive earnings surprise of 3.2% in the past four quarters.

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