We expect beauty and cosmetic goods company, Avon Products Inc. (AVP - Free Report) to beat expectations when it reports second-quarter 2017 results on Aug 3. In the last quarter, the company delivered a loss per share of 7 cents against our expectations of break-even results.
The company has recorded negative earnings surprise in three of the trailing four quarters. However, it has an average positive surprise of 3.7% in the last four quarters.
What to Expect?
The question lingering in investors’ minds now is whether Avon will be able to post positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the quarter under review is 5 cents per share, reflecting a year-over-year decline of 21.4%. We note that the Zacks Consensus Estimate has been going down ahead of the earnings release. Analysts polled by Zacks expect revenues of $1.44 billion, up 0.6% from the year-ago quarter.
We note that the stock has underperformed the industry in the last one month. The company’s shares have declined 4%, while the industry grew 3.7%.
Factors at Play
Though Avon’s surprise trend is yet to recover, we remain encouraged by the company’s Transformation Plan that was announced in Jan 2016.
With its Transformation Plan, the company targets bringing down costs over the long term and investing the savings back into growth initiatives like media, IT systems and social selling. It is on track to generate targeted savings of $230 million in 2017. Additionally, Avon is confident of achieving long-term goals of low-double digit operating margin growth, Active Representatives growth of 1–2% and constant-dollar revenue growth in the mid-single digits.
Moreover, the company is undertaking strategic endeavors to boost top-line growth, trimming costs and improving working capital. Further, Avon has made significant progress in improving balance sheet through refinancing activities, along with cutting costs by slashing jobs and exiting operations in the underperforming markets. We believe these actions will help Avon to streamline operations by focusing more on high-priority markets and activities as well as enhancing efficiency.
However, the company’s persistent dismal performances due to soft Active Representatives growth and currency headwinds cannot be ignored. The beauty products retailer’s recent records reveal that it has lagged both earnings and sales estimates for three straight quarters now. Despite its efforts to revive Active Representatives, the same declined 3% in first-quarter 2017 compared with the prior-year quarter. Furthermore, Ending Representatives dipped 1%.
Further, it anticipates the increase in bad debts (in Brazil) to linger in the second quarter, which is expected to remain challenging. That said, let’s wait and see if Avon’s transformation efforts can aid in reviving near-term performance.
What the Zacks Model Unveils?
Our proven model shows that Avon Products is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. The Most Accurate estimate is 6 cents while the Zacks Consensus Estimate is pegged lower at 5 cents. So the ensuing +20.00% ESP and the company’s Zacks Rank #3 makes us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks Poised to Beat Earnings Estimates
Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:
Dollar General Corp. (DG - Free Report) currently has an Earnings ESP of +0.93% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Clorox Co. (CLX - Free Report) currently has an Earnings ESP of +0.67% and a Zacks Rank #3.
Nordstrom Inc. (JWN - Free Report) has an Earnings ESP of +3.28% and a Zacks Rank #3.
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