Disappointing Performance Shows Dowside for Avon Products’ Stock

-50.38%
Downside
5.57
Market
2.76
Trefis
AVP: Avon Products logo
AVP
Avon Products

With slower-than-expected pace of recovery and worsening profitability, Avon Products (NYSE:AVP) posted disappointing 3Q results, missing targets by a wide margin. Brazil ERP implementation service disruptions led to significant losses, leaving Avon with no chances of achieving previous sales and operating margin targets. It has made no 4Q predictions and is fully assessing its long-range business plan. Avon is the largest direct selling organization in the world and has an active global sales force of over 6.2 million sales representatives who sell directly to consumers for beauty and skincare products, fashion accessories, decorative housewares and nutritional supplements. It competes Procter & Gamble (NYSE:PG), L’Oreal (PINK:LRLCY) and Revlon (NYSE:REV).

View our detailed analysis for Avon’s stock here.

Disappointing performance, misses targets by wide margin

With slower-than-expected pace of recovery and worsening profitability in Europe, Latin America and the U.S, and heavily disruptive Brazil ERP implementation, Avon posted disappointing 3Q results, missing its targets by a wide margin. It no longer expects to achieve mid-single-digit sales growth and 50-70 basis points of operating margin expansion in 2011. It made no 4Q predictions and is fully assessing its long-range business plan and is likely to provide an operational and financial update to investors in the first quarter of 2012.

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Huge ERP service disruptions in Brazil lead to heavy losses

Avon had a challenging Brazil Enterprise Resource Planning or ERP business management software system implementation, which caused great service disruptions with significant adverse impact on Avon’s top and bottom-line last quarter. Avon’s Latin America growth fell below double digits to 6% for the first time in over ten quarters. The service disruptions drove about an 8 percentage point sales drag in Brazil in the third quarter, 5% from lost sales due to ERP and service disruptions and about 3% fed by the representative annoyance factor that was higher than the second quarter.

Despite some initial recovery, Avon continues to face serious issues in Brazil from slowing beauty market growth, increasing competition, loss of market share due to ERP disruptions, flattened active representatives growth and deteriorating average order size.

We are reviewing our previous estimates for Avon stock.

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