Avon Beats Q3 Expectations, Still Shows Signs of Struggle

The release of Avon Products Inc. third quarter results Thursday before markets opened surpassed earnings expectations while missing revenue forecasts. The company reported adjusted net income from continuing operations of $99 million, or 23 cents per diluted share, beating expectations of 16 cents, according to the Zacks Consensus Estimate, and jumped approximately 64.3 percent from 14 cents, or $60 million, for the third quarter of 2013.

“We began the year with the expectation that the second half of 2014 would show improvement relative to the first half, and Avon’s third quarter results are consistent with modest improvement on both top and bottom line,” said Avon CEO Sheri McCoy. “We saw good results from our EMEA region, while sluggish performance in Brazil contributed to softer results in Latin America. Despite the strong headwinds in a number of markets, we continue to make progress on Avon’s turnaround journey.”

Still shares dropped over 9 percent Thursday, according to Zacks, after results fell short of revenue forecasts. The global cosmetics company posted revenue of $2.14 billion in the period, down 8 percent, or up 1 percent in constant dollars, from $2.32 billion during the prior year period. Analysts expected $2.15 billion, according to Zacks. Revenue was negatively affected by weak foreign exchange rates and lower sales volume, partially offset by the favorable net impact of mix and pricing, primarily due to inflationary pricing in Latin America.

Beauty sales declined 9 percent, but increased 1 percent in constant dollars. Fashion & home sales declined 11 percent, or 4 percent in constant dollars.

Brazil is the company’s largest market and Latin America is its most profitable region, yet Brazil revenue was up only 1 percent, or relatively unchanged in constant dollars. According to the company, this was partially impacted by high levels of competitive activity.

“In addition, the Brazilian economy has not recovered as anticipated after the World Cup. Consumer spending also seems to be impacted by the uncertain economic environment, the election cycle and high cost of debt,” McCoy said during the earnings conference call on Thursday. “That being said, while growth may be slowing, Brazil remains a highly attractive market, and we are committed to participating in its longer-term growth.”

Further results showed that third quarter 2014 gross margin was 61.9 percent and adjusted gross margin was 62.0 percent. Adjusted gross margin was 110 basis points lower than the prior-year quarter.

Read the full results here.

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