Avon Q1 Earnings Disappoint, Declares Dividend - Analyst Blog

The global beauty company, Avon Products Inc. AVP reported adjusted earnings of 12 cents per share for first-quarter 2014, below the Zacks Consensus Estimate of 20 cents and plunged 50% from the year-ago quarter's earnings of 26 cents.

Moreover, on a reported basis, the company posted a loss of 38 cents per share compared with a loss of 3 cents in the year-ago comparable quarter.

Total revenue for the quarter declined 11.1% year over year to $2,183.6 million compared with $2,456.0 million a year ago. Furthermore, total revenue missed the Zacks Consensus Estimate of $2,240.0 million. On a constant currency basis, total revenue declined 3% year over year.

During the quarter, the company registered an increase of 3% in price/mix, while Active Representatives and total units declined 4% and 6%, respectively. The company's average orders were up 1% in the quarter.

Avon, which competes with Inter Parfums Inc. IPAR, Nu Skin Enterprises Inc. NUS and Coty Inc. COTY, registered a 12% revenue decline in its Beauty Products and 9% decline in Fashion & Home revenues.

Adjusted gross margin of this Zacks Rank #4 (Sell) company expanded 120 basis points year over year to 61.5%, on account of negative currency translation effects primarily due to Europe, Middle East & Africa.

Adjusted operating margin contracted 240 basis points to 6.1%, attributable to revenue decline related to fixed expenses along with negative foreign currency translation as mentioned for gross margin.

Region-wise Performance

In the quarter, Avon's revenues in Latin America fell 7% year over year to $1,066.7 million, while it rose 7% on a constant-dollar basis. Revenue growth on a constant dollar basis resulted from an increase in average order, offset by reduction in Active Representatives. On a currency neutral basis, revenue increased 5% in Brazil and 54% in Venezuela, while it declined 8% in Mexico. Units sold and Active Representatives were each down 1% year over year.

In North America, sales skidded 22% year over year to $295.7 million, mainly due to a fall in Active Representatives and decline in units sold. On a constant dollars basis, revenues were down 21%. Units sold for the region waned 25% year over year, while Active Representatives slipped 18%. Regional Beauty and Fashion & Home sales were each down 21%.

The beauty product manufacturer's revenue of $654.8 million in Europe, the Middle East and Africa was down 11% year over year. On a currency neutral basis, revenue dipped 5%, driven by a fall in Active Representatives. Regional breakup shows that sales declined in almost all regions with Russia down 11%, U.K. down 6% and Turkey down 3%, while sales in South Africa were up 1%. For the region, Avon registered a 6% decline in both Active Representatives and units sold.

The Asia-Pacific division's revenue dipped 17% to $166.4 million, while constant dollars revenue declined 10%. The region marked an 8% decline in Active Representatives and a 12% fall in units sold. Country wise, the region recorded a 42% and 1% revenue decline in China and Philippines, respectively, on a constant dollar basis.

Other Financial Details

The leading global beauty company exited the quarter with cash and cash equivalents of $795.1 million, long-term debt (excluding current maturities) of $2,525.9 million, and shareholders' equity of $931.5 million.

Moreover, in conjunction to the earnings release, the company announced a quarterly dividend of 6 cents, payable on Jun 2, 2014, to shareholders of record as on May 15.

Headquartered in New York City, Avon directly sells cosmetics, fragrances, toiletries, jewelry and accessories. The company markets globally through more than 6 million independent sales representatives and is the world's largest direct seller of beauty products.