Feb 15, 2018
Avon tops estimates as EMEA becomes bright spot, to exit Australia by 2019
Feb 15, 2018
Avon Products Inc on Thursday reported its first earnings beat in six quarters as it signed up more sales representatives in Europe, Middle East and Africa to sell its lipsticks, anti-aging creams and fragrances, sending its shares up 14 percent in morning trade. The global cosmetic firm also said it will shutter its Australia and New Zealand operation by year-end 2018.
Sales in EMEA, which accounts for more than 40 percent of total sales, rose 3 percent. It was the only market to report a rise in sales as well as an increase in Avon Ladies, the company’s sales representatives.
The strong earnings report comes days after Avon hired Jan Zijderveld, a former Unilever executive as its chief executive officer, after his predecessor stepped aside, bowing to pressure from activist investors.
Zijderveld joins Avon at a time when it is focusing on emerging markets, after struggling to hold its ground in the United States where women are increasingly taking their makeup cues from social media rather than door-to-door sellers.
In Latin America, its biggest market, sales were weak due to economic and political instability in many countries. Sales in south Latin America fell 2 percent, while those in the north were flat.
“Our top line remains under pressure as we continue to operate in challenging macro and competitive conditions, particularly in our largest markets,” Chief Financial Officer Jamie Wilson said in a statement.
Avon’s cost-cutting measures resulted in savings of $250 million in 2017, exceeding the company’s target by $20 million for that year. The measures were part of a three-year plan initiated in 2016.
These measures, lower bad debt expense in Brazil and lower fixed expenses helped boost operating margin by 150 basis points in the fourth quarter, while gross margins rose 70 basis points.
Excluding one-time items, Avon earned 12 cents per share, beating analysts’ average estimate of 7 cents.
Net income attributable to the company was $91.5 million, or 17 cents per share, in the fourth quarter ended Dec. 31, compared with a loss of $10.7 million, or 4 cents per share, a year earlier.
The latest quarter benefited from a $30 million tax gain related to the recent overhaul of the U.S. tax code.
Net sales remained flat at $1.57 billion compared to the previous year, missing the average analyst estimate of $1.60 billion, according to Thomson Reuters I/B/E/S.
The New York City-based Avon’s shares were up 6.3 percent at $2.42 in morning trading.
SEE YOU LATER, AUSTRALIA
In a separate announcement on Thursday, the company revealed it would be completely withdrawing from Australia year-end 2018.
In a statement, Avon said it plans to shutter all operations in Australia, as well as New Zealand, before 2019, despite having 220 staff on the ground across both nations and more than 21,400 Avon Ladies on the books.
The statement read: “As part of the company’s strategy to return Avon to long-term sustainable profitable growth, the focus will be on markets with the greatest potential for future growth to support its vision of becoming the world’s leading social beauty company.
“In line with this, after a thorough deliberation on our performance, the direct selling conditions in the market, and potential for growth, we have considered all options for the business and it is with much sadness that we are announcing our decision to exit the Australia and New Zealand markets.”
The news was also announced on the Avon Facebook page, and was met with shock and sadness in Australia, with many representatives claiming to have heard the news for the first time via the Facebook post or their friends.
In the post, Avon ANZ president and managing director Sharon Plant said: “As a management team our commitment and focus over the coming days, weeks and months is to support our people and the wider Avon community who are impacted by this decision,” she said.
“I would like to thank all the employees, representatives and customers who have supported Avon in Australia and New Zealand over the years.”
Avon arrived in Australia in 1963.
With additional reporting by Benjamin Fitzgerald
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