Avon Products Inc. (AVP) recently posted fourth-quarter 2010 adjusted earnings of 59 cents a share, which fell short of the Zacks Consensus Estimate of 67 cents and dipped 13.2% from the year-ago figure of 68 cents a share.
For the fiscal 2010, the company reported adjusted earnings per share of $1.80 compared with $1.75 in the year-ago quarter. Earnings also failed to meet the Zacks Consensus Estimate of $1.89 per share.
On a reported basis, including one-time items, earnings dropped 15% to 53 cents per share from 62 cents per share in the year-ago quarter. For fiscal 2010, earnings fell 4% to $1.39 per share.
Total sales of the company rose 1.0% year over year to $3,175.6 million compared with $3,134 million a year ago, backed by a surge in pricing and synergistic acquisitions. However, revenues earned remained below the Zacks Consensus Estimate of $3,277.0 million.
The company’s beauty product sales slipped1.0%, driven by growth across all categories marred by skin care and color, which declined 12.0% and 2%, respectively.
Sales by Region
Avon’s revenue in Latin America recorded a growth of 5.0% primarily driven by a 3.0% growth in units sold and a 4.0% increase in Brazil, along with an impressive 50.0% spur in Mexico. Active representatives also increased 6.0%. However, Venezuela came as a major drawback suffering a 27% decline.
In North America, sales increased 1.0% year over year, pulled down by a 14.0% decline in units sold, which was partially countered by revenue gains in Silpada, improving 11%, while active representatives fell 7.0%.
The beauty product maker’s revenues in Western Europe, Middle East and Africa surged 9.0% year over year, elevated by an 11.0% growth in active representatives and 12% growth in units along with additional revenues from the newly acquired Liz Earle Beauty Co. Limited.
Central and Eastern Europe logged a 6.0% decline in revenues due to weak unit volume, which was down 2%. The region marked a 1.0% decline in active representatives.
The Asia-Pacific division witnessed a growth of 8.0%, attributable to a strong 15.0% revenue growth in Philippines. Active representatives also increased 3.0% during the quarter. China proved to be a major disappointment with revenues sliding 45.0% due to a 44.0% decrease in units sold and a 68.0% decline in active representatives.
Margin Expansion
Avon’s gross margin contracted 90 basis points year over year to 61.8% due to higher product cost and an adverse product mix, offset partially by improved pricing. Operating profit also fell 6% while operating margin contracted 100 basis points to 13.1%.
Other Financial Details
The leading global beauty company exited the year with cash and cash equivalents of $1,179.9 million and long-term debt of $2,408.6 million, and shareholders’ equity of $1,672.6 million.
Cash flow from operation came in at $689 million in fiscal 2010 versus $755 million in fiscal 2009. The decrease in cash from operation resulted from higher inventories and a negative impact from the timing of restructuring payments.
Guidance
Despite the lukewarm quarter, the company hinted that strong field programs coupled with an innovative pipeline should result in mid single-digit constant dollar revenue growth in 2011.
Avon currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. However, our long-term recommendation remains Neutral.
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