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Check Out Avon's (AVP) Probability to Beat Earnings in Q2

Zacks Equity Research

Avon Products, Inc. AVP is slated to release second-quarter 2019 results on Aug 1.

The company has a dismal earnings surprise trend, having lagged estimates in 11 of the last 15 quarters. Moreover, it witnessed average negative earnings surprise of 28.1% in the trailing four quarters.

Let’s see how things are shaping up for this announcement.

How Are Estimates Faring?

The Zacks Consensus Estimate for second-quarter earnings is pegged at 3 cents, indicating a significant growth from a loss of 3 cents incurred in the prior-year quarter. Notably, the consensus mark has remained stable over the past 30 days. For quarterly revenues, the consensus mark stands at $1.23 billion, implying a decrease of roughly 8.9% from the prior-year quarter’s reported figure.

Avon Products, Inc. Price and EPS Surprise

Avon Products, Inc. Price and EPS Surprise

Avon Products, Inc. price-eps-surprise | Avon Products, Inc. Quote

Moreover, the consensus estimate for quarterly revenues in Europe, Middle East & Africa; South Latin America; and North Latin America segments stands at $440 million, $444 million and $206 million, suggesting a decline of about 12.2%, 14% and 0.5%, respectively, on a year-over-year basis. Conversely, the revenue estimate for the Asia-Pacific segment is pegged at $119 million, reflecting 5.3% growth year over year.

Things You Should Know Ahead of Q2

Avon, which is likely to be acquired by Natura, remains well on track with its ‘Open Up Avon’ strategy. This is expected to drive the company’s top and bottom lines in the to-be-reported quarter. The strategy focuses on reviving the company’s direct selling business model, renovating the brand, enhancing e-commerce and other capabilities to aid a performance-driven transformation. Backed by the aforementioned initiative, the company also remains committed to attain its financial targets.

As part of this initiative, management expects to improve operating efficiency, slash inventory levels and reduce portfolio complexity by certain restructuring efforts. Restructuring actions include a 25% decrease in Stock Keeping Units (SKUs), a 15% reduction in inventory levels and a 10% job cuts. These jobs cuts are estimated to fetch Avon annualized pre-tax savings of nearly $97 million by 2019 end. These efforts are likely to help the company simplify operations and generate higher cost savings. These cost-saving initiatives should cushion Avon’s bottom line in the upcoming quarters by aiding margins.

In addition, Avon remains committed to improve digital tools and e-commerce channel to boost sales and Representative experience. Avon created dedicated e-commerce business units in all key markets, which helped it to steadily increase sales through this channel. Management targets doubling e-commerce sales in 2019, which should contribute to top-line growth in quarters ahead.

However, Avon is grappling with soft Representatives growth for quite some time now. This has been hurting the company’s top line, which lagged the consensus estimate in eight of the last 11 quarters. Moreover, the company’s focus on boosting Representatives' morale via higher cost of investments in the form of training and increased promotions might hurt its margins and profitability.

Further, the company is reeling under adverse foreign currency translations, which are likely to persist in the second quarter. In fact, Avon witnessed continued pressures from currency in the last reported quarter, with significant impacts on sales, adjusted operating margin and earnings. Notably, the company’s revenues in the first quarter included an 11% negative impact from foreign currency mainly due to currency devaluation in Brazil, Argentina and Turkey.

What Does the Zacks Model Say?
 
Our proven model does not show that Avon is likely to beat earnings estimates in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Avon’s Zacks Rank #2 increases the predictive power of earnings beat, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to beat estimates:

The Estee Lauder Companies Inc. EL has an Earnings ESP of +7.80% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

e.l.f. Beauty, Inc. ELF has an Earnings ESP of +29.41% and a Zacks Rank #2.

Inter Parfums, Inc. IPAR has an Earnings ESP of +5.26% and a Zacks Rank #2.

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