Why Did We Revise Avon’s Stock Price Upward By 25%?

-50.38%
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AVP: Avon Products logo
AVP
Avon Products

We have recently revised Avon Products’ stock price upwards by 25% shortly after the company’s Q2 2016 earnings results. After taking several recovery measures post its persistent losses since 2011, Avon is gradually seeing some improvements in its performance. 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. The company’s performance has started improving in its top ten markets, and it is collectively outperforming the overall growth of the rest of the company.

Towards the end of 2015, Avon decided to sell 80% of its loss making North American business to Cerberus Capital and received a total of $650 million investment from the latter. Since then, the company has also started implementing strategies to streamline operations and cut costs. In January, Avon announced a targeted cost saving to the tune of $350 million over the next three years. According to the company,  plans to manage costs are 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.

Below we give a chart of our ‘old’ versus ‘new’ forecasts for some of the important parameters to judge Avon’s performance. We have upgraded our forecasts in view of Avon’s recovery momentum.

avp revised aug 16

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

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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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