Avon Products Inc. AVP reported loss per share in line with estimates in first-quarter 2018 while revenues topped estimates. Results included gains from the new revenue recognition standard adopted in the first quarter of 2018.

Q1 in Detail

Avon posted adjusted loss per share of 2 cents in the first quarter, in line with the Zacks Consensus Estimate. Additionally, it reflected an improvement from a loss of 7 cents per share in the prior-year quarter.

Avon Products, Inc. Price, Consensus and EPS Surprise

Avon Products, Inc. Price, Consensus and EPS Surprise | Avon Products, Inc. Quote

On a reported basis, the company posted loss per share of 6 cents compared with loss per share of 10 cents in the year-ago quarter.

Deeper Insight

Total revenues improved 5% year over year to $1,393.5 million and surpassed the Zacks Consensus Estimate of $1,365 million. On a constant-currency basis, total revenues increased 2%. Results for the quarter include the benefit of the new revenue recognition standard. However, the top line was impacted by lower Active Representatives, mainly in Brazil and Mexico along with challenges in key markets, particularly in Brazil.

However, Active Representatives declined 4% compared with the prior-year quarter, driven by fall in South Latin America and North Latin America. Ending Representatives dipped 1% on account of softness in South Latin America and North Latin America, offset by growth in Europe, Middle East & Africa. Moreover, average orders improved 6% and price/mix rose 5% while total units sold dropped 3%.

Adjusted gross margin contracted 280 basis points (bps) year over year to 58.4%, driven by higher supply-chain costs, partly negated by positive impact from price/mix. Further, gross margin included a 310 bps negative impact from the adoption of the new revenue standard.

Adjusted operating margin expanded 100 bps to 4%. The year-over-year increase was due to lower bad-debt expenses, particularly in Brazil; partly compensated by higher Representative, sales leader and field expenses. It also included a 120 bps positive impact from the new revenue standard.

Segment Performance

Avon’s revenues of $568.4 million in Europe, Middle East & Africa rose 12% year over year. On a currency-neutral basis, revenues improved 2%. Results included 5% gain from the new revenue standard, offset by 1% decline in Active Representatives and lower average order. While price/mix and units sold for the region dipped 1% each, Ending Representatives rose 3%.

Revenues in South Latin America were flat at $497.1 million and improved 4% in constant-dollar, including 9% gain from the new revenue standard. During the quarter, gains from 10% increase in average order and 9% rise in Price/Mix were offset by 6% decline in Active Representatives, 5% fall in units sold and a drop of 3% in Ending Representatives. Further, revenues were impacted by the decline in Brazil, partly negated by growth in Argentina, due to inflationary pricing.

North Latin America’s revenues inched up 1% to $195.6 million and declined 3% in constant-dollars, attributable to 6% fall in Active Representatives, offset by 3% increase in average orders. While price/mix grew 7%, units-sold and Ending Representatives fell 10% and 5%, respectively. Revenues for the segment included 5% gain from the new revenue standard.

The Asia-Pacific division’s revenues declined 2% to $111.4 million and were down 3% in constant dollars, mainly owing to 1% decline in Active Representatives and 2% fall average orders. While price/mix rose 2%, units sold and Ending Representatives dropped 5% and 2%, respectively. During the quarter, Active Representatives were most significantly impacted by declines in Malaysia. Revenues were also impacted by 1% decline due to the adoption of the new revenue standard.

Financial Details

Avon ended first-quarter 2018 with cash and cash equivalents of $772.5 million, long-term debt of $1,629.6 million and total shareholders’ deficit of $756.3 million (excluding non-controlling interests).

Overall, the company’s shares have gained 11.1% in the last three months, outperforming the industry’s gain of 6.1%.

Zacks Rank & Stocks to Consider

Avon carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Consumer Staples sector include Conagra Brands Inc. CAG, The Boston Beer Company Inc. SAM, both carrying a Zacks Rank #1 (Strong Buy) and Inter Parfums Inc. IPAR with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Conagra Brands, with long-term earnings growth rate of 8%, has pulled off an average positive earnings surprise of 6.7% in the trailing four quarters.

Boston Beer, with long-term earnings growth rate of 9.5%, has delivered an average positive earnings surprise of 41.8% in the trailing four quarters.

Inter Parfums, with long-term earnings growth rate of 12.3%, has delivered an average positive earnings surprise of 17.5% in the past four quarters.

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