Avon (AVP): Can it Draw Investors’ Attention This Year?

Dismal top line and bottom line performances have kept the global beauty products company, Avon Products Inc. AVP in the news for quite a while now. Marred by adverse currency fluctuations, the company has reported lower-than-expected earnings in four of the trailing five quarters. Further, the company has underperformed the Zacks Consensus Estimate by an average of 112.5% in the past four quarters.

Moreover, the company anticipates results in 2016 to continue being impacted by currency headwinds, owing to which the Zacks Consensus Estimate for 2016 and 2017 has been trending down in the past 30 days. Estimates for both the periods have fallen 1 cent each to 13 cents and 37 cents, respectively.

However, there is a brighter side to the Avon story. Though its quarterly performance raise concerns, the company’s stock have been doing extremely well getting the much needed boost from the Transformation Plan. Shares of Avon has surged about 24.1% in the past one year, contrasting the 10.9% decline recorded for the Zacks categorized Cosmetics & Toiletries industry in the same period.

Avon is swiftly progressing with its Transformation Plan that targets bringing down costs over the long term and investing these savings back into growth initiatives like media, IT systems and social selling. As a first step toward the execution of the plan, Avon completed the separation of its North American business in Mar 2016.

With the Transformation Plan underway, the company is on track to deliver savings of $350 million over a three-year period, including $200 million from supply chain reductions and about $150 million from other cost reductions. In fact, management recently stated that for 2016, the company has accelerated the pace of some of its cost saving efforts, owing to which it is running ahead of schedule in realizing its targeted $70 million cost savings, along with about $20 million savings in stranded costs related to the separation of its North American business.

Moreover, the company has already realized savings of $80 million out of the planned $90 million through the first nine months of 2016. Additionally, Avon anticipates this plan to help it attain its long-term goal of delivering low double-digit operating margin and constant-dollar revenue growth in the mid-single digits.

Further, with regard to financial resilience, the Transformation Plan has aided Avon in significantly improving its capital structure and strengthening its balance sheet with about $235 million lesser debt levels and an extended maturity profile.

Moreover, the world's largest direct seller of beauty and related products has been focused on turning around its business through boosting Active Representatives. Avon remains on track to reach its long-term Active Representatives growth target of 1–2%. For 2016, the company anticipates Active Representatives to be flat to up 1% for the reportable segments and up 1–2% for its top 10 markets. This inspires optimism about the recovery of Avon’s business as Active Representatives form a key factor for the success of any direct-selling business operator.

Zacks Rank & Key Picks

Avon currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader consumer staples sector include Dean Foods Company DF, B&G Foods Inc. BGS and Ollie's Bargain Outlet Holdings Inc. OLLI, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dean Foods has a long-term EPS growth rate of 12%. Moreover, the company has delivered a return of 28.1% in the past one year.

B&G Foods has to its credit a long-term EPS growth rate of 8% and has gained 29.2% in the past one year.

Ollie’s Bargain, with a long-term earnings growth rate of 18.9%, has surged nearly 64.2% in the past one year.

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