Avon Products Q2 Results Suggest That The Company Might Be On Track For Recovery

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Avon Products

Avon’s second quarter 2016 results showed growth in sales in terms of constant currency. Post the selling off of ~80% of its underperforming North American business to Cerberus Capital, and receiving a total investment of $650 million from them, Avon has started implementing strategies to streamline operations and cut costs. According to the company,  plans to manage costs is going as per plans and its representative training and retention program is gradually bearing fruit. Avon is also revising and customizing its pricing and product mix in several regions and that seems to be showing an improvement in sales. Avon’s performance has improved in its top ten markets which is collectively outperforming the overall growth of the rest of the company.

avp q2 16 earnings

Avon Seems To Be Gradually Recovering

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In terms of constant currency, Avon’s revenues were up by 5% and each of the beauty and fragrance segment revenues grew by 5% Y-o-Y. The active representative base was up by 1% during the same period. Avon’s average order rose by 4% primarily due to the 7% increase in price mix.

Over 50% of Avon’s revenues come from Latin America and Brazil is the most important country for the company in that region. Sales in Brazil had remained weak so far on account of the economic slowdown and the imposition of Brazil’s IPI taxes. However, the company seems to be slowly recovering in Brazil. Revenues in Q2 2016 grew by 2% in terms of constant currency in Brazil. The company is mainly focusing on its active representatives to drive sales in the region. Also, since the purchasing power is currently low in the region, Avon is implementing strategic pricing especially on high-unit movers.

Transformation Plan

  • In January, Avon announced a targeted cost saving to the tune of $350 million over the next three years.
  • Avon’s product strategies comprise three important pillars:
    • Focusing on the growth of the top 40 brands that is responsible for ~80% of its revenues
    • Simplifying its product portfolio by consolidating disjointed brands under a common umbrella.
    • Taking steps to minimize the impact of inflation in the top markets.
  • By Q1 2017, Avon plans to complete the transfer of its headquarters from New York to the UK.
  • The social selling model is also being strengthened.

Have more questions about Avon Products (NYSE:AVP)? See the links below:

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Avon Products

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