Leading global beauty company, Avon Products Inc. (AVP - Analyst Report) is back in the green zone and how. The company, which was delivering a dismal performance for a while, seems to have returned to the growth trajectory, thereby giving investors plenty of reasons to cheer. This is well-evident from the 51.1% surge in its year-to-date stock price, which also hit a 52-week high of $6.18 yesterday, before eventually closing at $6.12.
Avon’s business revival efforts, along with the implementation of its Transformation Plan (announced in Jan 2016), have been key drivers for the company. As part of the Transformation Plan, Avon is continually working on its long-term target of bringing down costs and investing these savings back into growth initiatives like media, IT systems and social selling. As a first step toward the execution of the plan, Avon completed the separation of its North American business in Mar 2016.
Additionally, in March, the company announced a change to its operating model that would bring in more cost savings. The plan includes streamlining of corporate infrastructure, headquarters shift to the U.K., and eliminating about 1,700 filled and 800 open positions. With these actions and other supply chain and sourcing initiatives in place, the company is on track to deliver its targeted $70 million cost savings in 2016.
Further, with this plan underway, Avon envisions generating roughly $350 million worth of pre-tax annualized cost savings after three years. Also, the company expects this plan to help it attain its long-term goal of delivering low double-digit operating margin and constant-dollar revenue growth in the mid-single digits. These hint at a splendid future for this New York-based company.
Further, Avon has been focused on boosting growth of Active Representatives. Noting significant progress on this front, the company revealed that the Active Representatives trend is on the right track, with strength seen in most of its top markets in the second quarter. That said, the company anticipates 1%−2% growth in Active Representatives in 2016. This inspires optimism about further recovery of Avon’s business, as Active Representatives form a key factor for the success of any direct-selling business operator.
Thanks to all the aforementioned factors, Avon posted solid second-quarter 2016 results, wherein both top and bottom lines beat estimates, marking a significant recovery. Results gained from improved performances in 9 of the company’s top 10 markets in local currency. Also, management’s efforts to improve pricing, lower costs, build brand strength and boost Active Representatives started to pay off.
Clearly, Avon is on track to revert to sustainable, profitable growth in the long term, thus instilling confidence about this Zacks Rank #3 (Hold) stock among investors.
Stocks to Consider
Investors can count on better-ranked beauty products stocks like Coty Inc. (COTY - Snapshot Report) , with a Zacks Rank #1 (Strong Buy), Inter Parfums Inc. (IPAR - Snapshot Report) and Nu Skin Enterprises Inc. (NUS - Snapshot Report) , with a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Coty, with a long-term EPS growth rate of 8%, has seen positive estimate revisions for the current fiscal, over the past 60 days. Also, the company has delivered positive earnings surprises in three out of the trailing four quarters, with an average four-quarter surprise of roughly 50%.
Inter Parfums has to its credit a long-term EPS growth rate of 15% and positive estimate revisions for 2016, over the past 90 days.
Nu Skin, with a long-term EPS growth rate of 8.1%, has witnessed positive estimate revisions for the current quarter and year, over the past 90 days. Also, the company has delivered a negative earnings surprise only once, in the trailing four quarters.
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