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Bear of the Day: Avon Products, Inc. (AVP) Loses Its Luster

Shares of global cosmetics company Avon Products, Inc. (AVP) plunged more than 9% after the company announced plans to cut 2,500 jobs and move its headquarters to UK.

Bear of the Day: Avon Products, Inc. (AVP) Loses Its LusterAvon is the world’s largest direct beauty products seller with more than 5 million independent sales representatives. Avon products, which are available in over 100 countries, include color cosmetics, skincare, fragrance, fashion and home products, under brand names like Avon Color, ANEW, Skin-So-Soft and Advance Techniques.

Avon’s Disappointing Results Continue

Avon reported dismal results for its fourth quarter with sales falling for the 17th consecutive quarter. Total revenue for the quarter plunged 20% year over year and also missed the Zacks Consensus Estimate.  Earnings were breakeven versus Zacks Consensus Estimate of 8 cents per share and sharply down from 21 cents per share posted in the same quarter a year ago.

Avon’s Reducing Head Count, Moving Headquarters

Following the sale of its North American operations to Cerberus Capital Management, the company decided to move its headquarters to the United Kingdom, over time.  However it will continue to be incorporated in New York and trade on the NYSE. It will also maintain its current facilities in New York.

Earlier in March, the company has announced a strategic partnership with Cerberus for separation of its North America business into a private company, majority owned and managed by Cerberus.

Avon’s Falling Estimates Forecast Trouble Ahead

As a result of worsening outlook for the company, analysts have been revising their estimates lower. Zacks Consensus Estimates for the current and the next year are now at 23 cents per share and 31 cents per share, down from 32 cents per share and 37 cents per share, 60 days ago.

Declining estimates sent AVP back to a Zacks Rank # 5.

The following chart shows negative earnings and price momentum for AVP stock:

Here’s a Better Play in the Industry

Cosmetics industry is currently ranked 225 out of 265 Zacks industries (bottom15%). Investors could look at a better ranked stock in the industry—Coty Inc (COTY)—which carries a Zacks Rank #2 (Buy) as of now.

The Bottom Line on AVP Stock

In view of the ongoing execution of the three-year turnover plan, the outlook for the company remains cloudy. It remains to be seen whether the company will be able to successfully execute its strategy and improve its growth. Investors should therefore avoid this stock for the time being.

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