Shares of door to door cosmetics and beauty products giant, Avon Products Inc. (AVP: Charts, News) closed down -1.73 or 8.0 percent to $19.87 per share on Tuesday, after the company reported an 82 percent drop in first quarter earnings. Avon reported a net profit of $26.5 million or $0.06 per share, versus net income of $143.6 million or $0.33 per share for the same period one year ago.
With the exclusion of certain items, the company earned $0.10 per share, versus $0.37 in last year’s first quarter compared to an analyst poll by Thomson Reuters (TRI: Charts, News) which forecast the company would make $0.28 per share. Revenue fell by 2 percent, from $2.63 billion to $2.58 billion; the analyst consensus was for revenue of $2.52 billion.
New York City based Avon Products Inc. is the fifth largest beauty products company in the world and the world’s largest company dedicated to direct sales to the public. The company operates in more than 140 countries around the world and has an army of over six million sales representatives.
The company began laying off corporate employees in an attempt to improve margins, which have contracted significantly due to increased labor costs in Brazil and other international markets. In addition, heated competition from stores and cheaper products in the United States put pressure on the firm.
Avon recently hired Sherilyn S. McCoy, former Vice Chairman of the Executive Committee for pharmaceutical giant Johnson and Johnson (JNJ: Charts, News), as new Chief Executive Officer on April 10th. Ms. McCoy replaced Andrea Jung who went on to the Executive Chairman position after 12 years as CEO.
In an interview after the earnings release, Ms. McCoy answered when asked on her view of a larger-scale, broader based restructuring of the company, “I think what we need to be focused on is, how do we stabilize, making sure that people are clear around their accountabilities. I’m not sure that an overall restructuring makes sense. It may be just a better alignment of how we are going about driving the business.”
On April 2nd, privately held Coty Inc. offered $23.25 per share in an unsolicited bid for the company’s 430.77 million shares outstanding, totaling more than $10 billion. Avon responded to the bid rejecting the offer, saying it “substantially undervalues” the company despite the offer being 20 percent higher than where the stock was priced at the time.
After Coty’s bid announcement, Standard and Poor’s Rating Service put Avon’s corporate credit rating of “BBB” and its short term rating of “A2″ on CreditWatch with negative implications. S&P said that if a deal went through between Coty and Avon, it would include “meaningful additional debt” for Avon.
Avon Products stock is back where it was trading before the Coty bid was announced on April 2nd, which might make shareholders put pressure on Avon’s board to accept the Coty offer. Nevertheless, if the stock price declines further, it could give Coty additional leverage to buy Avon.
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