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Bear of the Day: Avon Products (AVP)

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Headquartered in New York City, 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 70 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 weak results for its third quarter. Adjusted earnings from continuing operations came it at 3 cents per share in the third quarter, missing the Zacks Consensus Estimate of 7 cents. This was the fifth straight quarter of miss for the company.

Total revenue was up 1% year over year and also slightly ahead of the Zacks Consensus Estimate. The management expects full-year results to be weaker than the guidance provided earlier.

"With mixed results in Q3 and some positive trends, we expect to see modest improvement continue in Q4. However, it will not be enough to overcome the slow start to 2017, and thus we expect annual results to come in below our 2017 guidance.”

The stock plunged almost 10% following the release and is now down about 66% this year.

Falling Estimates

As a result of worsening outlook for the company, analysts have been cutting their estimates. Zacks Consensus Estimates for the current and the next year are now at a loss of ($0.02) per share and earnings of $0.18 per share, down from $0.09 and $0.27 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 had announced the departure of its CEO earlier this year. 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?

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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