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Avon's Transformation Plan Bodes Well, Soft Sales a Concern
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Avon Products, Inc.’s Transformation Plan has shown persistent progress, having outpaced the cost-saving expectations last year. Also, it has helped the company to deliver earnings beat in fourth-quarter 2017 after five straight quarters of negative surprises. However, revenues returned to negative surprise trend after a beat in the preceding quarter.
Nonetheless, shares of this cosmetics leader have gained 23.8% in the past three months owing to its robust initiatives, comfortably outperforming the Cosmetics industry’s 9.4% rally. The industry ranks in the top 23% of all Zacks classified industries. The stock also boasts a VGM Score of A, with a long-term earnings growth of 12.5%.
Given this backdrop, let’s delve deeper to find out the factors that are likely to have a bearing on this Zacks Rank #3 (Hold) company’s performance.
Transformation Plan Shows Continued Momentum
Avon has been smoothly progressing with its three-year Transformation Plan that was announced in January 2016. Notably, it has realized cost savings of more than $250 million in 2017, surpassing the targeted $230 million. Further, the company has successfully completed the second year of the plan and is on track to reach its overall cost savings target of $350 million. The plan mainly focuses on investing in growth, enhancing cost structure and improving financial flexibility. In this regard, Avon has witnessed significant progress compared with its targets of enhancing cost structure and improving financial resilience.
Moving ahead, management is likely to focus on the business foundations and improve overall performance to attain its savings target. Furthermore, it intends to achieve the long-term target of delivering the mid-single-digit constant-dollar revenue growth and low double-digit operating margin. In fact, the company expects 2018 to be a year of executing significant operational improvements, despite continued competitive pressures.
Focused on Improving Active Representatives
Management remains focused on boosting Global Active Representatives growth and is on track to deliver 1-2% growth in the long term. Additionally, the company is expected to focus on investment in modernizing systems, delivering unique and competitive Representative experience, amid a challenging scenario. It intends to provide deeper insights and analytics into Representative’s behavior and requirements to boost experience. Avon also remains encouraged to minimize service disruption along with pilot programs that cover service from end to end. This inspires optimism about the growth of Active Representatives, which form a key factor for the success of any direct-selling business operator.
Q4 Earnings Beat & Margins Underscore Strength
Backed by its robust Transformation Plan, Avon pulled off a positive earnings surprise for the first time in six straight quarters. The company’s adjusted earnings per share came in at 12 cents in the fourth quarter of 2017, beating the Zacks Consensus Estimate of 6 cents and delivering a positive surprise of 100%. Additionally, the bottom line reflected a significant increase from earnings of 1 cent per share in the prior-year quarter. Bottom line gained from considerable operating margin expansion due to lower bad-debt expenses and benefits from cost reduction initiatives, alongside tax gains from the recently enacted tax reform. Gross margin also improved 80 basis points (bps) owing to better price/mix. Moreover, operating margin expanded 250 bps on lower bad-debt expenses, particularly in Brazil and lower fixed costs.
Soft Sales – A Woe
Although the company reported better-than-expected earnings in fourth-quarter 2017, Avon is not doing well on the revenue front. Apparently, it has missed sales estimates in five of the six trailing quarters, including the recently-reported quarter. The top line in the fourth quarter was mainly hurt by decline in both Active Representatives and Ending Representatives across all segments, except EMEA. Active Representatives declined higher-than-anticipated, mainly owing to fall in Brazil, which also hurt volumes significantly. Moving ahead, Avon’s top line is likely to remain under pressure due to a tough macro and competitive environment, mainly in its largest markets.
As mentioned above, Avon has been working on delivering growth across its Global Active Representatives, which might require time.
Want Top-Ranked Stocks in the Same Space, Check These
The Estée Lauder Companies Inc. (EL - Free Report) has a Zacks Rank #2 (Buy) and delivered a positive earnings surprise of 18.1% in the last four quarters.
Blue Buffalo Pet Products, Inc. (BUFF - Free Report) , also a Zacks Rank #2 stock, has an impressive long-term earnings growth rate of 24%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
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Avon's Transformation Plan Bodes Well, Soft Sales a Concern
Avon Products, Inc.’s Transformation Plan has shown persistent progress, having outpaced the cost-saving expectations last year. Also, it has helped the company to deliver earnings beat in fourth-quarter 2017 after five straight quarters of negative surprises. However, revenues returned to negative surprise trend after a beat in the preceding quarter.
Nonetheless, shares of this cosmetics leader have gained 23.8% in the past three months owing to its robust initiatives, comfortably outperforming the Cosmetics industry’s 9.4% rally. The industry ranks in the top 23% of all Zacks classified industries. The stock also boasts a VGM Score of A, with a long-term earnings growth of 12.5%.
Given this backdrop, let’s delve deeper to find out the factors that are likely to have a bearing on this Zacks Rank #3 (Hold) company’s performance.
Transformation Plan Shows Continued Momentum
Avon has been smoothly progressing with its three-year Transformation Plan that was announced in January 2016. Notably, it has realized cost savings of more than $250 million in 2017, surpassing the targeted $230 million. Further, the company has successfully completed the second year of the plan and is on track to reach its overall cost savings target of $350 million. The plan mainly focuses on investing in growth, enhancing cost structure and improving financial flexibility. In this regard, Avon has witnessed significant progress compared with its targets of enhancing cost structure and improving financial resilience.
Moving ahead, management is likely to focus on the business foundations and improve overall performance to attain its savings target. Furthermore, it intends to achieve the long-term target of delivering the mid-single-digit constant-dollar revenue growth and low double-digit operating margin. In fact, the company expects 2018 to be a year of executing significant operational improvements, despite continued competitive pressures.
Focused on Improving Active Representatives
Management remains focused on boosting Global Active Representatives growth and is on track to deliver 1-2% growth in the long term. Additionally, the company is expected to focus on investment in modernizing systems, delivering unique and competitive Representative experience, amid a challenging scenario. It intends to provide deeper insights and analytics into Representative’s behavior and requirements to boost experience. Avon also remains encouraged to minimize service disruption along with pilot programs that cover service from end to end. This inspires optimism about the growth of Active Representatives, which form a key factor for the success of any direct-selling business operator.
Q4 Earnings Beat & Margins Underscore Strength
Backed by its robust Transformation Plan, Avon pulled off a positive earnings surprise for the first time in six straight quarters. The company’s adjusted earnings per share came in at 12 cents in the fourth quarter of 2017, beating the Zacks Consensus Estimate of 6 cents and delivering a positive surprise of 100%. Additionally, the bottom line reflected a significant increase from earnings of 1 cent per share in the prior-year quarter. Bottom line gained from considerable operating margin expansion due to lower bad-debt expenses and benefits from cost reduction initiatives, alongside tax gains from the recently enacted tax reform. Gross margin also improved 80 basis points (bps) owing to better price/mix. Moreover, operating margin expanded 250 bps on lower bad-debt expenses, particularly in Brazil and lower fixed costs.
Soft Sales – A Woe
Although the company reported better-than-expected earnings in fourth-quarter 2017, Avon is not doing well on the revenue front. Apparently, it has missed sales estimates in five of the six trailing quarters, including the recently-reported quarter. The top line in the fourth quarter was mainly hurt by decline in both Active Representatives and Ending Representatives across all segments, except EMEA. Active Representatives declined higher-than-anticipated, mainly owing to fall in Brazil, which also hurt volumes significantly. Moving ahead, Avon’s top line is likely to remain under pressure due to a tough macro and competitive environment, mainly in its largest markets.
As mentioned above, Avon has been working on delivering growth across its Global Active Representatives, which might require time.
Want Top-Ranked Stocks in the Same Space, Check These
Helen of Troy Limited (HELE - Free Report) has pulled off an average positive earnings surprise of 17% in the past four quarters. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Estée Lauder Companies Inc. (EL - Free Report) has a Zacks Rank #2 (Buy) and delivered a positive earnings surprise of 18.1% in the last four quarters.
Blue Buffalo Pet Products, Inc. (BUFF - Free Report) , also a Zacks Rank #2 stock, has an impressive long-term earnings growth rate of 24%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>