Avon Products Inc. (AVP) recently posted third-quarter 2010 earnings of 41 cents a share, which fell short of the Zacks Consensus Estimate by 6 cents and dipped 2.4% from last year’s 42 cents a share.
The drop came on the back of heavy expenses and lower-than-expected revenues. However, the Zacks Consensus Estimate was stable prior to the earnings announcement.
On a reported basis, including one-time items, earnings jumped 5.6% to 38 cents from 36 cents in the year ago quarter.
Total sales of the company rose 4.0% year over year to $2,657.6 million compared with $2,559.0 million a year ago, backed by a surge in unit volume and acquisitions. However, revenues earned remained below the Zacks Consensus Estimate of $2,693.0 million.
The company’s beauty product sales increased 3.0%, driven by growth across all categories apart from skin care, which declined 3.0%.
Sales by Region
Avon’s revenue in Latin America recorded a growth of 8.0% primarily driven by a 6.0% growth in units sold and 14.0% growth in Brazil, coupled with an impressive 18.0% growth in Mexico. Active representatives also increased 8.0%.
In North America, sales declined 2.0% year over year, pulled down by an 8.0% decline in units sold, which was partially offset by revenue gains in Silpada, while active representatives decreased 6.0%.
The beauty product maker’s revenues in Western Europe, Middle East and Africa surged 11.0% year over year, elevated by 14.0% growth in active representatives along with a revenue growth in the newly acquired Liz Earle Beauty Co. Limited.
Central and Eastern Europe logged a 1.0% decline in revenues due to an increase in advertising expenses, while unit volume remained flat year over year. The region marked a 3.0% growth in active representatives.
The Asia-Pacific division witnessed a growth of 3.0%, attributable to a strong 13.0% revenue growth in Philippines, though offset by the sluggish market in Japan. Active representatives also increased 2.0% during the quarter. Revenues slipped 30.0% in China, reflecting a 28.0% decrease in units sold and a 36.0% decline in active representatives.
Margin Expansion
Avon’s gross margin expanded 170 basis points year over year to 64.4% due to better productivity, price increment and efficient sourcing, offset partially by a currency devaluation in Venezuela. However, operating margin remained flat due to a rise in selling, general and administration expenses.
Other Financial Details
The leading global beauty company exited the quarter with cash and cash equivalents of $841.5 million and long-term debt of $1934.6 million, reflecting a debt-to-capitalization ratio of 56.2% and shareholders’ equity of $1509.2 million.
Avon currently retains a Zacks #3 Rank, which translates to a short-term Hold rating. However, our long-term recommendation remains Neutral.
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