AVP Avon Products Inc

Avon Products Inc. (AVP) is scheduled to release its first-quarter 2011 results on Tuesday, May 3, 2011. The Zacks Consensus Estimate is 31 cents a share for the first quarter of fiscal 2011. This represents a year-over-year estimated growth rate of 34.8%.

Fourth Quarter Performance      

Avon Products posted fourth-quarter 2010 adjusted earnings of 59 cents a share, which fell short of the Zacks Consensus Estimate of 67 cents and dipped 13.2% from the year-ago figure of 68 cents a share.

On a reported basis, including one-time items, earnings dropped 15% to 53 cents per share from 62 cents per share in the year-ago quarter. For fiscal 2010, earnings fell 4% to $1.39 per share.

Total sales of the company rose 1.0% year over year to $3,175.6 million compared with $3,134 million a year ago, backed by a surge in pricing and synergistic acquisitions. However, revenues earned remained below the Zacks Consensus Estimate of $3,277.0 million.

Earnings Guidance 

Despite the lukewarm quarter, the company hinted that strong field programs coupled with an innovative pipeline should result in mid single-digit constant dollar revenue growth in 2011.

Agreement of Analysts

Over the last 30 days, 2 analysts out of 16 moved their estimates in the upward direction with 4 analysts revising their estimates downward, for the first quarter of fiscal 2011. The estimate for fiscal 2011 follows the same trend over the last 30 days.

In the last 7 days, none of the analysts have moved their estimates in either direction, which implies that most of the analysts are neutral on the outlook and do not foresee any upward catalyst or downward pressure on the result.

Magnitude of Estimate Revisions

The magnitude of estimate revisions for Avon Products depicts a negative outlook for the upcoming quarter and fiscal 2011. Over the last 30 days estimates for the first quarter and fiscal 2011 have gone down by 1 cent and 2 cents to 31 cents and $2.00 per share, respectively.

Earnings Surprise

Considering earnings surprises, the stock has not been steady over the last four quarters, with a mix of positive and negative surprises ranging between a low of -12.8% and a high of 6.7%. The average remained negative at 3.7%.

The upside potential for the estimate in the first quarter 2011, essentially a proxy for future earnings surprises, currently stands at 0.0%.

Our Recommendation

Avon presently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation remains Neutral.

Avon Products is a leading global beauty company and, as the world's largest direct seller of beauty and related products, targets women consumers in over 100 countries through 6.2 million independent sales representatives. The company also derives a substantial portion of its revenue from high-growth emerging markets, which offer a significant future upside potential.

Avon is in the midst of a multi-year restructuring program that primarily accelerates investments toward targeted growth opportunities, streamlines worldwide manufacturing operations, improves cost effectiveness of administrative operations and enhances organizational effectiveness. The restructuring program is expected deliver annualized savings of more than $430 million when fully implemented by 2012.

On the other hand, Avon faces competition across various products and product lines, both domestically and internationally. The beauty and beauty-related products industry is highly aggressive and the number of competitors and degree of competition in this industry varies widely from country to country.

Worldwide, Avon competes against products sold to consumers by other direct-selling and direct-sales companies and through the Internet and against products sold in the mass market and through prestige retail channels. The company competes head-to head with Revlon Inc. (REV).

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