Avon shares soar after 4Q sparks turnaround hopes

Shares of Avon jump after better-than-expected adjusted 4Q profit prompts hope of turnaround

Associated Press

NEW YORK (AP) -- Avon Products Inc. was the biggest gainer of the Standard & Poor's 500 index Tuesday after the direct seller of beauty products' adjusted fourth-quarter profit came in well ahead of Wall Street predictions. That prompted hopes that the company is in recovery mode.

THE SPARK: The New York-based maker of Skin So Soft lotion and mark cosmetics posted a wider fourth-quarter loss, but its adjusted earnings totaled 37 cents per share — 10 cents above the average estimate of analysts surveyed by FactSet.

Revenue fell 1 percent to $3 billion, matching average predictions. Stripping out the effects of translating income earned overseas back into the dollar, revenue rose 1 percent.

THE BIG PICTURE: The company is slashing costs, hoping to save $400 million in three years, as it tries to turn itself around. It has suffered sales declines, a bribery probe and other problems. Under new CEO Sheri McCoy, who took over last April, Avon has cut its dividend, laid off workers and is exiting the Vietnamese and South Korean markets.

Shares had dropped 27 percent from a 52-week peak of $23.58 in April.

"2012 was a challenging year for Avon, but I'm encouraged to see that the overall business is showing early signs of stabilization," said McCoy in a statement.

THE ANALYSIS: The worst could be behind the company, and it's making progress in both improving sales and cutting costs, said Citi analyst Wendy Nicholson. She has a "Buy" rating on the shares.

"While it's hard to say with much confidence that Avon is out of the woods completely as several big issues remain outstanding...it seems as if the core business has perhaps stabilized," Nicholson wrote in a note to investors.

The company is still facing a bribery probe by U.S. regulators, and challenges in its North American business — revenue dropped 12 percent there in the fourth quarter — and in China.

THE SHARES: Up $3.77, or 22 percent, to $21.05 in afternoon trading. Over the past 52 weeks, the shares have traded between $13.70 and $23.58.

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