Revlon Earnings Disappoint On Flat Revenue Growth

by Trefis Team
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Revlon (NYSE:REV) reported disappointing earnings growth for Q1 2013 on April 25. Net sales increased marginally to $331.9 million versus $330.7 million last year. This is in line with our estimates as the company is struggling to expand its reach in the developing markets owing to the heavy debt burden.

Revlon has debt of almost $1.1 billion on its balance sheet. Heavy debt servicing costs leaves little room for the company to spend additional resources on advertising and launching new products. Revlon incurred a net loss of $6.9 million in the first quarter as opposed to a net income of $8.5 million in the previous year. We have updated our price estimate to reflect the latest earnings report.

See Our Full Analysis for Revlon Stock

Top line gets support from developed markets

Net revenues for Revlon increased by $1.2 million largely due to higher sales in the developed regions. Latin America, Canada and the U.S. contributed more than 70% of the total revenues primarily driven by higher net sales of Revlon and SinfulColors color cosmetics and the inclusion of the net sales of Pure Ice which it acquired last year, partially offset by lower net sales of Almay color cosmetics and Revlon ColorSilk hair color. Net sales in Argentina also benefitted from higher selling prices which accounted for approximately one-third of the net sales increase in the region. Revenues in the U.S. grew by almost 4% while in Latin America and Canada it increased by 3.2%.

Sales in Europe, Middle East and Africa disappointed as it declined 11.1% to $40.7 million while in Asia Pacific revenues decreased 4.5% to $53.6 million. These regions together contribute about 30% of the total Revlon revenues. Revlon color cosmetics saw reduced demand in France and China, two of the major markets for color cosmetics.

Bottom line remains weak

The operating income for the company increased from $44.3 million to $47.3 million year-on-year. However, this also includes a gain of $8.3 million related to the settlement of the company’s claim for loss of inventory due to the June 2011 fire in Venezuela. Revlon reported a net loss of $6.9 million in the first quarter compared to net income of $8.5 million in the same period last year. This also includes a charge of $27.9 million related to debt refinancing activities in addition to the gain from insurance claim.

We have updated our $15.70 price estimate for Revlon after the company filed its financials with the SEC.

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