How Will Avon Perform In Q3 2018 Earnings

by Trefis Team
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Avon (NYSE: AVP) is scheduled to announce its Q3 earnings on November 1. During the previous earnings Avon’s total revenue declined to $1.4 billion, down 3% on a y-o-y basis in Q2,  as compared to the same period last year, due to the impact of adopting the new revenue recognition standard required by generally accepted accounting principles in the United States (“GAAP”). Avon has also experienced a decline in Active Representatives and Ending Representatives.  Each declined 4% excluding the Brazil truckers’ strike. Avon’s bottom line remained dampened as it experienced continued variability with challenges in key markets, particularly Brazil, where it was facing bad debt, challenges with representative retention, as well as stiff competition from other players.

On the brighter side, the company remains on track with the Transformation Plan that targets achieving cost savings of $65 million in 2018, of which $24 million was reached in the second quarter.  The company also  completed the early redemption of their 2019 bonds to reduce their debt and further strengthen their balance sheet.

Looking ahead in Q3 and remaining 2018, with the recent inductions in the top management Avon is making progress in a number of key areas including delivering competitive representative experience, rigorous performance management, insightful data & analytics, and a focus on execution capabilities. Please refer to our dashboard analysis on What to expect from Avon’s Q3 Earnings.

Below we discuss the main focus areas that will likely help Avon in reviving growth in the upcoming Q3 2018 results:

Geographic And Brand Focus – Avon’s Q2 revenues were up by 1% y-o-y in Europe, Middle East & Africa (EMEA), however was down by 8% in South Latin America, where Brazil suffered an outsized impact from the trucking strike in the second quarter.  In North Latin America, revenues were relatively unchanged, while the Asia-Pacific division’s revenue was down by 1%. A similar trend was observed in the company’s Ending Representative figures across geographies. Active Representatives and Ending Representative declined 4% each, driven by decreases in South Latin America, primarily Brazil, Europe, Middle East & Africa, and North Latin America, but mostly hit by the Brazil truckers’ strike. The company is also focusing on better representative engagements in these 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 has segregated 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.

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.

The company is focused to generate efficiencies, and will strive to improve on the above trends in the remaining FY2018 by strategically redirecting investments to support its underlying growth initiatives.

 

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