Weekly Beauty And Personal Care Notes: L’Oréal, Avon, Revlon

-2.58%
Downside
97.27
Market
94.76
Trefis
LRLCY: L'Oreal logo
LRLCY
L'Oreal

This week has been strategically significant for two leading beauty players. Avon Products (NYSE:AVP) is mulling over the decision to sell off its North America segment. The division (contributing 14% of Avon’s revenues in 2014) has been  incurring losses for the last three years. In contrast, Revlon (NYSE:REV) is contemplating the purchase of Procter & Gamble‘s (NYSE: PG) cosmetics division.

On a separate note, L’Oreal (OTC:LRLCY) is making significant strides with its sustainable development program. In 2014, the company reduced carbon dioxide emission by 50% from its 2005 levels.

Below, we give a quick rundown on the most notable events in the last week related to these companies.

Relevant Articles
  1. Is There More Room For Growth In L’Oreal Stock?
  2. After Underperforming The Markets, Can L’Oreal Stock Rally?
  3. L’Oreal Stock Poised For Bounce Back After Rough Month?
  4. After Dismal Performance Last Month, L’Oreal Stock Looks Set To Rebound
  5. L’Oreal Stock Looks Set For A Rally On The Back Of Strong Earnings Growth
  6. Forecast Of The Day: L’Oreal Makeup Revenues

See Our Complete Analysis for These Companies Here

L’Oreal

A year after the launch of its sustainable development program for 2020 called ‘Sharing Beauty with All‘, L’Oreal has attained significant progress as was evidenced by its first progress report. The company reduced carbon dioxide emission by 50% from a 2005 baseline, while growing production by 22%. 67% of its new products are more environment-friendly or have an improved social profile. Along with this, L’Oreal created 54,000 jobs for underprivileged communities. L’Oreal would hereby produce an annual report quantifying its progress around key performance indicators towards sustainable development. [1]

We have a price estimate of $33, which is slightly lower than the current market price. Our full 2015 revenue estimate stands at approximately $31.6 billion and we have an IFRS diluted EPS estimate of $2.66 and a diluted cash EPS estimate of $3.43. L’Oreal’s stock price experienced negligible movements over the last week.

Avon Products

Avon Products, the direct selling company of  beauty, household, and personal care products experienced a rough year in 2014. The company’s sales declined by 12% to $8.6 billion. The company is on a downhill trend, having posted its last profit back in 2011. Avon’s direct selling model through representatives is losing market share to retail outlets and online shopping.

In view of its losses, Avon is contemplating on strategic changes, and this might include the sale of its North American business, according to the Wall Street Journal. The company has not yet commented on the issue. [2]

In North America, Avon’s sales have been hit due to a drop in the representative pool. In 2014, North America experienced 17% constant dollar decline in revenues and an 18% decline in the active representative base. North America contributes over 10% to Avon’s net sales.

Avon had nearly 470,000 representatives in North America in 2009, which declined to 258,000 representatives by the end of 2014. This continued decline in active representatives is likely to weigh on sales and put margins under pressure going forward. The recovering North American economy and the subsequent creation of full-time jobs is expected to pile on an additional pressure on Avon’s representative base because Avon representatives are usually non-contractual workers.

We have a price estimate of $10 for Avon Products, which is at slightly higher than the current market price. Our full 2015 revenue estimate stands at approximately $8.6 billion compared to a consensus estimate between $7.1 billion to $8.0 billion. Avon’s stock price experienced a significant 10% growth over the last week.

Revlon

According to industry sources, companies such as Revlon, Coty, and Henkel are gearing up to bid for parts of Procter & Gamble’s beauty business. Leading consumer processed goods company Procter & Gamble  has commenced the process to sell some of its beauty brands, according to Bloomberg. [3] The global behemoth has reportedly sent out sale documents for its Wella hair care unit, the fragrance business, and certain unnamed cosmetic brands. Bloomberg reports that the combined value of these businesses could be as high as $19 billion, making it P&G’s biggest divestment so far.

The three companies are working jointly with investment banks before the first-round bid deadline that has been set for next week. Revlon is eyeing P&G’s cosmetics business, including brands such as CoverGirl and Max Factor. The annual EBITDA for this business is estimated to be around $350 million. Henkel is keen on buying P&G’s haircare business, including brands such as Clairol and Wella. The annual EBITDA for this business stands at around $500 million. Coty, the owner of brands like OPI and Rimmel is likely to buy P&G’s fragrance unit. Coty might also be interested in P&G’s cosmetics division. P&G’s fragrance division including brands such as Hugo Boss and Gucci has an EBITDA of around $250 million. It is still unclear whether P&G intends to sell its brands as the part of a package (whose value can vary between $10 billion to $12 billion) or in a piecemeal manner. The company might even decide to spin off the unit, instead of selling it. [4] Neither P&G nor the potential bidders have confirmed these developments.

We have a price estimate of $31 for Revlon, which is at a considerable discount to the current market price. Our full 2015 revenue estimate stands at approximately $1.94 billion compared to a consensus estimate of $1.85 billion. We expect non-GAAP earnings per share of $1.93 this fiscal year, compared to consensus estimates of $1.80. Revlon’s stock price experienced a 2.5% decline over the last week.

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

 

A year post the launch of its sustainable development program Sharing Beauty with All program for 2020, L’Oreal has attained significant progress as was evidenced by its first progress report.

The company reduced carbon dioxide emission by 50% from a 2005 baseline, while growing production by 22%. 67% of its new products are more environment friendly or have an improved social profile. Along with this, L’Oreal created 54,000 jobs for underprivileged communities.

L’OReal would hereby produce an annual report quantifying its progress around key performance indicators towards sustainable development.

Notes:
  1. L’Oréal Reduces CO2 Emissions 50% in First Year of Sustainable Development Plan, Sustainable Brands, April 16, 2015 []
  2. Avon exploring sale of North America business: WSJ, Reuters, April 14, 2015 []
  3. P&G Said to Kick Off Sale of Beauty Brands Including Wella, Bloomberg, April 8, 2015 []
  4. Exclusive – Henkel, Revlon, Coty prepare P&G beauty brand offers: sources | Reuters, FirstPost, April 16, 2015 []