Turnarounds

Avon Stock Surges 15% on Q2 Earnings Beat

The beauty products company posted EPS of 7 cents and $1.43 billion in revenue as it continued to execute a turnaround plan.
Matthew HellerAugust 2, 2016

Avon Products on Tuesday reported an 8.3% drop in revenue for the second quarter but a larger-than-expected profit helped fuel hopes that the beauty company’s turnaround plan is gaining traction.

Avon’s shares rose 15% to $4.80 after it posted earnings of 7 cents per share and revenue of $1.43 billion. Analysts had forecast 2 cents in profit and revenue topped estimates of $1.41 billion.

“Our second quarter results came in slightly above our expectations, driven by operating performance that was better than anticipated,” Avon CEO Sheri McCoy said in a news release, noting that performance improved in nine of the company’s top 10 markets.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

“We continue to make steady progress on a number of fronts: improving pricing discipline; driving additional cost out of the business; and, continuing to build our brand and enhance the representative experience,” she added.

As The Wall Street Journal reports, consumers in recent years “have turned away from Avon’s signature direct sales approach and moved toward the internet,” causing its stock to fall sharply. In January, Avon outlined a turnaround plan that included cutting $350 million in costs in the next three years, reinvesting in technological capabilities, and making better use of social media.

In the long term, the company is hoping to achieve a low double-digit operating margin and mid single-digit constant-dollar revenue growth.

For the second quarter, it reported an operating margin of 6.6%, up 90 basis points, while adjusted operating margin was 7.3%, up 100 basis points. “These year-over-year comparisons benefited from the favorable net impact of price/mix, as well as continued benefits from cost savings initiatives, partially offset by approximately 350 basis points of unfavorable impact of foreign exchange,” Avon said.

Before Tuesday’s surge, Avon’s shares had lost 27% of their value over the past 12 months. “Avon’s weaknesses include its deteriorating net income, weak operating cash flow, generally disappointing historical performance in the stock itself, and feeble growth in its earnings per share,” TheStreet said.