What to expect from Avon’s Q1

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AVP: Avon Products logo
AVP
Avon Products

Avon (NYSE: AVP) is scheduled to announce its first quarter earnings on May 3.  The company had struggled with its performance over the first three quarters of 2017 and in Q4 its top line was approximately unchanged at $1.6 billion.  Avon’s bottom line remained dampened in Q4 due to problems in Brazil, where it continues facing bad debt, challenges with representative retention, as well as stiff competition from other players.  Avon’s active representatives declined by 2% y-o-y mainly due to the  decreases in the Latin America region. On the bright side, the Company realized more than $250 million in cost savings under its Transformation Plan, which was initiated in 2016, exceeding its cost savings target of $230 million for 2017. The company also actually beat on the bottom line, reporting $.12 v. the estimate of $.07, which had not happened in six quarters.

Looking ahead in 2018, Avon plans to make progress in a number of key areas including delivering competitive representative experience, rigorous performance management, insightful data & analytics, and a relentless focus on execution capabilities.

Please refer to our dashboard analysis on Avon.

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Below we discuss the main focus areas that will likely aid Avon in reviving growth in the upcoming Q1 2018 results:

Digital Initiatives –  The company is focusing on digital and e-commerce initiatives. Avon’s social media presence has increased with it having the third largest fan following among beauty brands. Along with increasing investments on advertisements, the company is shifting many of its campaigns to the digital platform. In our view, this will positively impact its performance as an increasing number of customers are buying beauty products online.

Geographic And Brand Focus – The company is more than focused on its top ten markets for most of its growth. These are: Brazil, Mexico, Russia, Philippines, the UK, Argentina, Colombia, Turkey, Poland, and South Africa.  These markets are at present growing for Avon at a faster rate than the company’s overall growth. The company is also focusing on better representative engagements in its top markets. Along with its markets, Avon has also decided to focus on around 40 of its top brands that contribute about 80% of its growth. It is segregating its brands under three tiers: Upper Mass, Mass, and Value. It is also focused on gathering analytical data on each representative’s business and working towards improving their representatives experience.

Short Term And Long Term Financial Goals – Enabled by these strategies, the company plans on driving out cost, improving financial resilience, and investing in growth over the next three years. Its long term financial goals include: mid-single digit constant dollar revenue growth and a low double-digit adjusted operating margin.

Following the stepping down of its CEO in early 2018, Avon has hired a new CEO and executive members. This fresh induction of talent is expected to steer the company towards the path of better growth. Overall, we expect Avon to continue to post improving results in its upcoming earnings with moderate growth in the top line.

 

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