Source: Company reports/Coresight Research

2Q18 Results

Avon reported 2Q18 revenues of $1.35 billion, down 3.2% year over year and missing the consensus estimate of $1.40 billion. A new revenue recognition standard added four percentage points to revenues. Total revenues increased 1% in constant dollars, including a 1% impact from the truckers’ strike in Brazil. The gross margin declined by 227 basis points due to a 330 basis-point effect from adopting the new revenue recognition standard. The operating margin increased by 57 basis points, including a 10 basis-point headwind from the new revenue recognition standard. Adjusted EPS was $(0.02), missing the breakeven consensus estimate. GAAP EPS was $(0.09), compared to $(0.12) in the year-ago quarter.

Details from the Quarter

• The number of active representatives declined 4%, of which 3% stemmed from the Brazil truckers’ strike.
• The number of ending representatives also declined 4%, with decreases in all segments.
• The average order size increased by 6% in constant dollars, including a four percentage-point benefit from the new revenue recognition standard.

Results by Category

• Skincare revenues were $372 million, down 6% as reported and down 2% in constant currency.
• Fragrance revenues were $348 million, down 5% as reported and flat in constant currency.
• Color revenues were $212 million, down 9% as reported and down 5% in constant currency

Results by Geography

Europe, Middle East and Africa

• Revenues were $501 million, up 1% and flat in constant currency.
• Revenues benefited by 3% from the new revenue recognition standard.
• Reported and constant-dollar revenues benefited from an increase in the number of representatives.

South Latin America

• Revenues were $516 million, down 8% as reported and up 3% in constant currency.
• Revenues benefited by 5% from the new revenue recognition standard.
• Reported and constant-dollar revenues declined due to a decrease in the number of representatives.

North Latin America

• Revenues were $207 million, flat as reported and up 3% in constant currency.
• Revenues benefited by 5% from the new revenue recognition standard.
• Reported and constant-dollar revenues were hurt by a decrease in the number of representatives, partially offset by an increase in average order size.

Asia/Pacific

• Revenues were $113 million, down 1% as reported and up 1% in constant currency.
• Revenues benefited by 1% from the new revenue recognition standard.
• Reported and constant-dollar revenues benefited from an increase in the number of representatives, partially offset by a decrease in average order size.

Outlook

Management articulated that the company’s strategy centers on achieving profitable, sustainable topline growth by focusing on the experience and satisfaction of its representatives through enhanced training as well as the expected launch of 200 products in the second half of the year. Street consensus estimates for 2018 call for revenues of $5.34 billion compared to revenues of $5.72 the prior year, a decrease of 1%. The consensus EPS estimate is $0.13, compared to $0.06 last year.