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Avon (AVP) Reports Loss in Q2, Revenues Fall Shy of Estimates

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Avon Products Inc. (AVP - Free Report) reported a dismal second-quarter 2018, wherein both top and bottom lines lagged estimates. While the loss per share remained unchanged from the prior-year quarter, sales declined year over year. Results included gains from the new revenue recognition standard, adopted in the first quarter of 2018.

Q2 in Detail

Avon posted adjusted loss per share of 3 cents in the second quarter, missing the Zacks Consensus Estimate for earnings of 1 cent. However, the bottom line was in line with the prior-year quarter.

Price, Consensus and EPS Surprise


Price, Consensus and EPS Surprise | Quote

On a reported basis, the company posted loss per share of 9 cents compared with loss per share of 12 cents in the year-ago quarter.

Total revenues declined 3% year over year to $1,351.9 million and lagged the Zacks Consensus Estimate of $1,388 million. On a constant-currency basis, total revenues increased 1%. In the reported quarter, results include a 4% benefit of the new revenue recognition standard, offset by a 1% negative impact due to the trucker strike in Brazil. Further, the top line was impacted by lower Active Representatives, mainly in Brazil, Russia and Mexico, along with challenges in key markets, particularly in Brazil.

Active and Ending Representatives declined 4% each. Excluding the impact of the truckers’ strike, Active and Ending Representatives were both down 3%. Moreover, average orders improved 5% and price/mix rose 6% while total units sold dropped 5%.

Adjusted gross margin contracted 230 basis points (bps) year over year to 60.1%, driven by higher supply-chain costs, partly negated by positive impact from price/mix and non-recurring Brazil net tax recoveries. Further, gross margin included a 330 bps negative impact from the adoption of the new revenue standard.

Adjusted operating margin expanded 60 bps to 5.7%. The favorable year-over-year comparison was aided by non-recurring Brazil net tax recoveries.

Segmental Performance

Avon’s revenues of $500.7 million in Europe, Middle East & Africa rose 1% year over year. On a currency-neutral basis, revenues remained flat. Results included 3% gain from the new revenue standard, offset by a 3% decline in Active Representatives and units sold in the region. While price/mix and average order rose 3% each, Ending Representatives fell 2%.

Revenues in South Latin America declined 8% to $516.1 million and improved 3% on a constant-dollar basis, including 5% gain from the new revenue standard. During the reported quarter, gains from 8% increase in average order and 9% rise in Price/Mix were more than offset by 5% decline in Active Representatives, 6% fall in units sold and a drop of 4% in Ending Representatives. Further, revenues were impacted by the decline in Brazil, partly negated by growth in Argentina due to the inflationary pricing.

North Latin America’s revenues were flat year over year at $207.3 million and improved 3% in constant dollars, attributable to 8% increase in average orders and 9% growth in price/mix. This was partly offset by 5% fall in Active Representatives, while units-sold and Ending Representatives fell 6% and 8%, respectively. Revenues for the segment included 5% gain from the new revenue standard.

The Asia-Pacific division’s revenues edged down 1% to $113.1 million and improved 1% in constant dollars, mainly owing to 2% increase in average orders and 1% rise in price/mix. This was partly negated by 1% fall in Active Representatives and 4% decline in Ending Representatives while units sold were unchanged. Revenues included 1% benefit from the adoption of the new revenue standard.

Financial Details

Avon ended second-quarter 2018 with cash and cash equivalents of $443.9 million, long-term debt of $1,630.3 million and total shareholders’ deficit of $918.9 million (excluding non-controlling interests).

During the second quarter, the company further lowered debt and strengthened its balance sheet by the early redemption of 2019 bonds.

Overall, this Zacks Rank #4 (Sell) stock has declined 27.6% in the last three months, wider than the industry’s decline of 2.5%.

Don’t Miss These Consumer Staples Stocks

Some better-ranked stocks in the broader consumer staples sector are Archer Daniels Midland Company (ADM - Free Report) , with a Zacks Rank #1 (Strong Buy), The Boston Beer Company, Inc. (SAM - Free Report) and Dean Foods Company (DF - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Archer Daniels has rallied 20% year to date. The company delivered an average positive earnings surprise of 18.6% in the last four quarters.

Boston Beer has long-term earnings growth rate of 9.5%. Moreover, the stock has surged 18.2% in the last three months.

Dean Foods delivered positive earnings surprise of 16.7% in the last reported quarter. Moreover, the stock has rallied 17% in the last three months.

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