Avon Products Inc. (AVP) recently announced its financial results for the first-quarter of fiscal 2011.
Street analysts had more than a week to ponder on the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.
Quarterly Review
Avon Products recently posted first-quarter 2011 adjusted earnings of 37 cents a share, which beat the Zacks Consensus Estimate of 31 cents and increased 12.1% from the year-ago figure of 33 cents a share. On a reported basis, including one-time items, earnings jumped 230% to 33 cents per share from 10 cents per share in the year-ago quarter.
Total sales of the company rose 7.0% year over year to $2,629.1 million compared with $2,446.3 million a year ago. Total revenue also beat the Zacks Consensus Estimate of $2,585.0 million.
The company’s beauty product sales increased 8.0%, driven by growth of 10% in fragrance, 6% in color, 7% in skincare, and 8% in personal care.
Agreement of Analysts
Analyzing estimate revision trends, following the 1Q11 earnings report, we find a predominantly positive sentiment among the analysts for the second quarter of fiscal 2011 and fiscal year 2011. Over the last 7 days, 7 of the 14 analysts covering the stock have revised their estimates upward with downward movement by just 1 analyst for the second quarter of fiscal 2011. For fiscal 2011, 11 of the 16 analysts covering the stock have increased their estimates in the last 7 days without any movement in the negative direction.
Magnitude of Estimate Revisions
The magnitude of estimate revisions for Avon depicts an optimistic outlook of analysts for the second quarter and fiscal 2011 spurred by an upward bias in estimates. Over the last 7 days, consensus estimates for the second quarter of fiscal 2011 and fiscal 2011 have increased by 1 cent and 6 cents to 49 cents and $2.06 per share, respectively.
Our Recommendation
Avon currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. However, our long-term recommendation is currently Underperform.
Avon Products is a leading global beauty company and, as the world's largest direct seller of beauty and related products, targets women consumers in over 100 countries through 6.2 million independent sales representatives. The company also derives a substantial portion of its revenue from high-growth emerging markets, which offer a significant future upside potential.
Avon is in the midst of a multi-year restructuring program that primarily accelerates investments toward targeted growth opportunities, streamlines worldwide manufacturing operations, improves cost effectiveness of administrative operations and enhances organizational effectiveness. The restructuring program is expected to deliver annualized savings of more than $430 million when fully implemented by 2012.
Management is undertaking restructuring initiatives in an effort to save costs and boost profitability, which augurs well for future operating performance.
On the other hand, Avon faces competition from various products and product lines both domestically and internationally. The beauty and beauty-related products industry is highly competitive and the number of competitors and degree of competition in this industry vary widely from country to country.
Worldwide, Avon competes against products sold to consumers by other direct-selling and direct-sales companies and through the Internet and against products sold in the mass market and through prestige retail channels. The company competes head-to head with Revlon Inc. (REV).
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
AVON PRODS INC (AVP): Free Stock Analysis Report
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