Avon Products, Inc. AVP is slated to release second-quarter 2018 results on Aug 2. The question lingering in investors’ minds is whether this leading cosmetics retailer will be able to deliver an earnings beat in the upcoming quarter.
The company has exhibited a dismal earnings trend, having lagged estimates in eight of the last 11 quarters. Further, it came up with an average negative earnings surprise of 26.8% in the trailing four quarters.
Avon Products, Inc. Price and Consensus
Avon Products, Inc. Price and Consensus | Avon Products, Inc. Quote
The Zacks Consensus Estimate for second-quarter earnings is pegged at 1 cent against a loss of 3 cents in the year-ago quarter. In fact, estimates have been stable in the last 30 days. Moreover, the consensus mark for revenues is $1.4 billion, down 0.6% from the prior-year actual figure.
Let’s find out how things are shaping up for this announcement.
Factors at Play
Avon has been witnessing sluggish Active and Ending Representatives for last few quarters now. This, in turn, adversely impacted the company’s top line, which missed estimates in five of the trailing seven quarters.
In first-quarter 2018, Active Representatives fell year over year in all of the company's four segments, while Ending Representatives declined in all the segments except Europe, Middle East & Africa. The top line was impacted by decline in Active Representatives, mainly in Brazil and Mexico coupled with challenges in the key markets, particularly in Brazil. Unfortunately, management still expects intense competitive environment in Brazil to adversely impact pricing despite the improving economy.
Higher supply-chain costs also dented gross margin in the first quarter, which contracted 280 basis points.
Dismal surprise trend weighed on the company’s share price, which has plunged 41.3% in the past three months, significantly wider than the industry’s decline of 7.3%.
However, Avon’s smooth progress on its Transformation Plan that delivered above its cost-saving plan for 2017 is impressive. Notably, the company has witnessed significant progress compared with its targets of enhancing cost structure and improving financial resilience. Management remains on track with the Transformation Plan that targets achieving cost savings of $65 million in 2018, of which $15 million was reached in the first quarter.
Also, management is committed toward boosting Representatives growth by providing deeper insights and analytics into Representative’s behavior, and requirements to boost experience. Avon too remains encouraged to minimize service disruption and pilot programs, which cover service from end to end.
Given the company’s pros and cons, let’s see whether Avon’s Transformation Plan and growth strategies can offset the aforementioned headwinds and deliver earnings beat in the to-be-reported quarter.
Zacks Model
Our proven model does not conclusively show that Avon is likely to beat earnings estimates in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Avon Products has an Earnings ESP of -44.45% and a Zacks Rank #4 (Sell). This combination makes surprise prediction difficult.
Stocks With Favorable Combination
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
Dean Foods Company DF has an Earnings ESP of +11.63% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Estee Lauder Companies Inc. EL has an Earnings ESP of +1.31% and a Zacks Rank of 3.
Inter Parfums, Inc. IPAR has an Earnings ESP of +1.59% and a Zacks Rank #3.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment