We have downgraded our long-term recommendation on Avon Products (AVP) to Underperform following the weak quarterly performance in the fourth quarter of 2010. The quarterly earnings of $0.59 per share fell short of the Zacks Consensus Estimate of $0.67 and dipped 13.2% from the year-ago quarter, battered by increased product costs.
The North American market remained sluggish throughout fiscal 2010. Moreover, the company’s initiatives to change the product mix and reposition the business in the U.S. market will require significant expenditure to support increased advertising and promotional activities, which may dent its margins.
Furthermore, Avon is highly leveraged, which limits its financial flexibility for future growth. Additionally, the company faces stiff competition from other established players and has significant exposure to foreign currency translations.
AVON PRODS INC (AVP): Free Stock Analysis Report
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