Avon's Earnings Recover in 4Q - Analyst Blog
12 February 2013 - 10:43PM
Zacks
After reporting dismal results over the past six quarters,
Avon Products Inc. (AVP) posted
better-than-expected sales and earnings results for the fourth
quarter and full year 2012. The company’s adjusted earnings per
share (EPS) of 37 cents for the fourth quarter surpassed the Zacks
Consensus Estimate of 27 cents per share.
For the full year, adjusted earnings of 85 cents per share were
well above the Zacks Consensus Estimate of 76 cents. However,
adjusted earnings for the year slipped substantially from $1.64 per
share reported in the year-ago quarter.
However, on a reported basis, the company reported a loss of 37
cents per share for the fourth quarter and 10 cents per share for
the full year.
Total revenue for the fourth quarter inched down 1% year over year
to $2,999.1 million compared with $3,043.7 million a year ago.
However, total revenue beat the Zacks Consensus Estimate of $2,996
million. Total units growth of 2% as well as a 1% improvement in
Active Representatives, offset by 1% decline in price/mix,
contributed to the top-line beat.
Full year revenue declined 5% to $10,717.1 million but surpassed
the Zacks Consensus Estimate of $10,695 million.
Quarter Synopsis
During the quarter, Avon registered a revenue decline in its Beauty
Products, Fashion and Home products categories, where sales
decreased 5%, 5% and 4%, respectively. The decline in Beauty
revenue was primarily due to short falls in its color, skincare,
fragrance and personal care products.
Avon’s adjusted gross margin fell 130 basis points year over year
to 59.9%, on account of the negative impact of product mix relating
to weak inventory flows, mainly in Brazil. Adjusted operating
profit dwindled 2.6%, while operating margin contracted 20 basis
points to 9.2%, attributable to lower gross margin, which was
nearly offset by lower operating expenses, relating to lower net
brochure costs, lower overhead and advertising expenses.
Region-wise Performance
In the fourth quarter, Avon delivered 2% revenue increase in
Latin America, primarily due to a 3% decline in
Brazil, partially offset by a 9% rise in Mexico and a 2% rise in
Venezuela. Units sold were up 6% during the quarter, while Active
Representatives grew 6% year over year.
In North America, sales skidded 12% year over
year, mainly due to a fall in Active Representatives. The North
American Business, excluding Silpada, was down 11%. At Silpada,
sales were down 18% as average orders as well as Active
Representatives declined. Units sold for the region waned 11% year
over year, while Active Representatives slipped 13%.
The beauty product manufacturer’s revenues in Europe, the
Middle East and Africa inched up 1% year over year,
primarily due to improvements in units sold as well as Active
Representatives. Regional breakup shows that sales escalated in
almost every operating region with Russia and Turkey increasing 3%
and 1%, respectively, while revenue in UK and South Africa remained
flat. Avon registered a 1% increase in Active Representatives,
while units sold were up by 5% during the quarter.
The Asia-Pacific division witnessed a 3% dip in
revenues. The region marked an 8% decline in Active Representatives
and a 9% fall in units sold. Country-wise, the region recorded a 7%
revenue increase in Philippines, largely offset by a 23% decline in
China.
Other Financial Details
The leading global beauty company exited the quarter with cash and
cash equivalents of $1,209.6 million, long-term debt (excluding
current maturities) of $2,623.9 million, and shareholders’ equity
of $1,233.3 million.
For the year ended Dec 31, 2012, the company earned net cash of
$556.1 million for operational activities as against $655.8 million
in the prior-year comparable period. Avon expended $228.8 million
in capital expenditure during the year.
Moreover, earlier this morning, the company announced a quarterly
dividend of 6 cents, which is payable on Mar 1, 2013 to
shareholders of record as on Feb 26.
Avon currently retains a Zacks Rank #3 (Hold). Stocks performing
well in the cosmetics space include Inter Parfums
Inc. (IPAR), Nu Skin Enterprises Inc.
(NUS), both of which have a Zacks Rank #1 (Strong Buy) and
L'Oreal SA (LRLCY), which carries a Zacks Rank #2
(Buy).
AVON PRODS INC (AVP): Free Stock Analysis Report
INTER PARFUMS (IPAR): Free Stock Analysis Report
(LRLCY): ETF Research Reports
NU SKIN ENTERP (NUS): Free Stock Analysis Report
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