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Bear of the Day: Avon (AVP)

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Avon Products (AVP - Free Report) 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.

Disappointing Results

The company reported dismal results for its second quarter, missing on both the top and bottom lines.

Adjusted loss from continuing operations of 3 cents per share missed the Zacks Consensus Estimate of 5 cents.

Total revenue fell 3% year over year to $1,395.9 million, below the Zacks Consensus Estimate of $1,443.3 million.

Active representatives declined 3% with decreases in all segments. Average order fell 1% with declines in North Latin America and Europe, Middle East & Africa.

The stock plunged more than 10% following the release and is now down about 52% this year.

Falling Estimates

As a result of worsening outlook for the company, analysts have been revising their estimates lower. Zacks Consensus Estimates for the current and the next year are now at $0.09 and $0.27 per share, down from $0.20 and $0.35 per share, before the results. Declining estimates sent AVP back to Zacks Rank # 5.

The following chart shows the negative earnings and price momentum for AVP:


CEO Steps Down

The company announced the departure of its CEO on the same day it reported Q2 results. The release said “Sheri McCoy will step down as Chief Executive Officer and as a director on March 31, 2018, in line with her commitments to Avon's Board of Directors to transform the business.”

Better Play in the Industry?

Cosmetics industry is currently ranked 91 out of 265 Zacks industries (top 34%). Investors could look at a better ranked stock in the industry—Estee Lauder (EL)—which carries a Zacks Rank #1 (Strong Buy) as of now.

The Bottom Line

In view of the ongoing execution of the three-year turnover plan, the outlook for the company remains cloudy. It remains to be seen whether the company will be able to successfully execute its strategy and improve its growth. Investors should therefore avoid this stock for the time being.

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