Avon Products Inc. (AVP) reported adjusted earnings of 20 cents per share from continuing operations, which fell short of the Zacks Consensus Estimate of 25 cents and declined 41.2% from 34 cents posted in the year-ago quarter. The company’s bottom-line results were mainly impacted by foreign currency transaction costs and translation adjustments.
Further, on a reported basis, the company posted a loss of 75 cents per share from continuing operations compared with a loss of 16 cents in the year-ago comparable quarter.
Total revenue for the quarter declined 12% year over year to $2,341 million from $2,667.2 million. However, the top line surpassed the Zacks Consensus Estimate of $2,328 million. On a constant currency basis, total revenue improved 5% year over year.
During the quarter, the global beauty company registered an increase of 8% in price/mix, while Active Representatives fell 4% and total units slipped 3%. Average orders were up 9% in the quarter.
Avon, which competes with Inter Parfums Inc. (IPAR), Nu Skin Enterprises Inc. (NUS) and Coty Inc. (COTY), registered declines of 14% and 13% in its Beauty Products and Fashion & Home segment revenues, respectively. On a constant dollar basis, sales at Beauty Products rose 5%, while Fashion & Home revenues inched up 1%.
Adjusted gross margin of this Zacks Rank #4 (Sell) company contracted 40 basis points (bps) year over year to 60.8% on account of negative currency translation effects, primarily in Latin America and Europe, Middle East & Africa as well as higher supply chain expenses. This was, however, partly offset by an encouraging mix and pricing, prompted by inflationary pricing in Latin America.
Adjusted operating margin improved 110 basis points (bps) to 9.3%, mainly driven by VAT credits in Brazil and gains from the company’s ongoing cost saving initiatives.
Regional Performance
In the quarter, Avon’s revenues in Latin America fell 15% year over year to $1,051.8 million, while it rose 10% on a constant-dollar basis owing to the acknowledgement of Value Added Tax (VAT) credits in Brazil along with an increase in average orders, offset by a reduction in Active Representatives. Units sold and Active Representatives were down 6% and 5%, respectively, year over year.
In North America, sales skidded 12% year over year to $326.9 million, mainly due to a fall in Active Representatives and units sold, offset slightly by improved average order. On a constant dollar basis too, revenues were down 11%. Units sold for the region dropped 10% year over year, while Active Representatives slipped 16%. Regional Beauty sales declined 10%, while Fashion & Home sales were down 13%.
Avon’s revenues of $772.9 million in Europe, the Middle East and Africa fell 11% year over year. However, on a currency neutral basis, revenues increased 5% mainly driven by higher average orders, 1% increase in Active Representatives and 3% rise in units sold. However, revenues were slightly affected by the closure of the France business.
The Asia-Pacific division’s revenue fell 2% to $189.4 million. Conversely, constant dollar revenues increased 2%, mainly due to higher average orders. The region marked a 5% decline in Active Representatives, while units sold inched down 1% year over year.
Full-Year Synopsis
For 2014, the company’s adjusted earnings came in at 75 cents per share, down 26.5% from 2013 and short of the Zacks Consensus Estimate of 79 cents. Revenues for the year fell 11% to $8,851.4 million, while constant dollar sales were flat compared with the last year. The company’s top line surpassed the Zacks Consensus Estimate of $8,845 million.
Other Financial Details
Avon exited 2014 with cash and cash equivalents of $960.5 million, long-term debt (excluding current maturities) of $2,463.9 million and shareholders’ equity of $289.8 million, excluding non-controlling interest.
Moreover, in conjunction with the earnings release, the company announced a quarterly dividend of 6 cents, payable on Mar 2, 2015, to shareholders of record as on Feb 23.
2015 Outlook
For 2015, the company projects a modest improvement in revenues on a constant-dollar basis. However, given the January foreign currency spot rates, management expects 2015 total revenue to bear nearly 12 percentage points negative impact from foreign currency translation.
Additionally, the company anticipates adjusted operating income for the year to be significantly impacted by foreign currency transaction costs and translation adjustments. However, on a currency neutral basis, adjusted operating income is expected to improve modestly due to higher prices and more cost containment efforts, which should offset majority of the foreign exchange headwinds.
Nevertheless, adjusted operating margin is expected to fall up to 1 point in reported dollars due to foreign currency impact.
Headquartered in New York City, Avon directly sells cosmetics, fragrances, toiletries, jewelry and accessories. The company, marketing globally through more than six million independent sales representatives, is the world’s largest direct seller of beauty products.
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