Earnings on Tap: Avon Products
Will management be able to give Avon the makeover it needs?
Will management be able to give Avon the makeover it needs?
Avon Products reports third-quarter results Thursday before markets open. Analysts are expecting earnings to come in at $0.23 per share, down from $0.38 reported in the year-ago period.
In the previous quarter, earnings dropped 70% on the back of slumping sales across all business segments. The cosmetics seller has been drawing flak from investors for having failed to take timely action to curtail losses in key overseas markets. Avon has also been embroiled in prolonged and expensive investigations pertaining to potential violations of the Foreign Corrupt Practices Act. The company has so far lost around $280 million and plenty of goodwill toward these proceedings.
"Avon is hoping to settle this issue, and we believe that by putting these issues behind it, management will be better able to focus on righting the company's business, which we believe is a top priority for the new management group," says Morningstar analyst Erin Lash.
Also in focus will be Avon's pending in-depth strategic review, which has been ongoing for several months. The company has been reassessing its long-term business strategy and has also recently reshuffled its top brass.
Earlier this month, the Food and Drug Administration disclosed that several of Avon's products are currently being marketed as drugs, which ultimately require a higher level of oversight and regulation. "This is far from a positive for a firm and a management group that have been working to put its troubled past in the rearview mirror," writes Lash.
Shares of the company have slumped more than 11% since the start of the year and are presently trading at a discount to Lash's fair value estimate for Avon. Lash, however, would not recommend the stock to investors even at that price as she thinks Avon is in a very tenuous situation.
"We place a very high degree of uncertainty around the stock; it's not for the faint of heart," adds Lash.
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