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Avon Products (AVP) Down 20% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Avon Products, Inc. (AVP - Free Report) . Shares have lost about 20% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is AVP due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Avon Products Q1 Loss Meets Estimates, Revenues Top

Avon Products incurred loss per share in line with estimates in first-quarter 2018, while revenues surpassed the same. Results included gains from the new revenue recognition standard adopted in the reported quarter.

Q1 in Detail

Avon incurred adjusted loss of 2 cents per share in the first quarter, in line with the Zacks Consensus Estimate. This reflects an improvement from a loss of 7 cents per share in the prior-year quarter.

On a reported basis, the company incurred loss of 6 cents per share compared with loss of 10 cents in the year-ago quarter.

Deeper Insight

Total revenues improved 5% year over year to $1,393.5 million and surpassed the Zacks Consensus Estimate of $1,365 million. On a constant-currency basis, the top-line increased 2%. Results for the quarter included the benefits from the new revenue recognition standard. However, the top line was impacted by lower Active Representatives, mainly in Brazil and Mexico along with challenges in key markets, particularly in Brazil.

However, Active Representatives declined 4% compared with the prior-year quarter, due to fall in South Latin America and North Latin America. Ending Representatives dipped 1% on account of softness in South Latin America and North Latin America, offset by growth in Europe, Middle East & Africa. While, average orders improved 6% and price/mix rose 5%, total units sold dropped 3%.

Adjusted gross margin contracted 280 basis points (bps) year over year to 58.4% on higher supply-chain costs, partly negated by positive impact from price/mix. Notably, gross margin included a 310 bps negative impact from the adoption of the new revenue standard.

Adjusted operating margin expanded 100 bps to 4%. The year-over-year increase can be attributed to lower bad-debt expenses, particularly in Brazil; partly compensated by higher Representative, sales leader and field expenses. It also included a positive impact of 120 bps from the new revenue standard.

Segmental Performance

Avon’s revenues of $568.4 million in Europe, Middle East & Africa rose 12% year over year. On a currency-neutral basis, the metric improved 2%. Results included 5% gain from the new revenue standard, offset by 1% decline in Active Representatives and lower average order. While price/mix and units sold for the region dipped 1% each, Ending Representatives rose 3%.

Revenues in South Latin America were flat at $497.1 million and improved 4% in constant dollar, including 9% gain from the new revenue standard. During the quarter, gains from 10% increase in average order and 9% rise in Price/Mix were offset by 6% decline in Active Representatives, 5% fall in units sold and a drop of 3% in Ending Representatives. Further, revenues were impacted by the decline in Brazil, partly negated by growth in Argentina owing to inflationary pricing.

North Latin America’s revenues inched up 1% to $195.6 million and declined 3% in constant dollars, attributable to 6% fall in Active Representatives, offset by 3% increase in average orders. While price/mix grew 7%, units-sold and Ending Representatives fell 10% and 5%, respectively. Revenues for the segment included 5% gain from the new revenue standard.

The Asia-Pacific division’s revenues declined 2% to $111.4 million and were down 3% in constant dollars, mainly due to 1% decline in Active Representatives and 2% fall average orders. While price/mix rose 2%, units sold and Ending Representatives dropped 5% and 2%, respectively. During the quarter, Active Representatives were significantly impacted by declines in Malaysia. Revenues were also impacted by 1% decline due to the adoption of the new revenue standard.

Financial Details

Avon ended first-quarter 2018 with cash and cash equivalents of $772.5 million, long-term debt of $1,629.6 million and total shareholders’ deficit of $756.3 million (excluding non-controlling interests).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower. Last month, the consensus estimate has shifted downward by 46.7% due to these changes.

Avon Products, Inc. Price and Consensus

 

VGM Scores

At this time, AVP has a nice Growth Score of B, however its Momentum is doing a bit better with an A. The stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise AVP has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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