Avon tipped to continue with improved financial performance for Q2

Avon tipped to improve its financial performance for Q2

Ahead of the results for its second quarter, the embattled cosmetics giant is being tipped to continue to gain ground as cost saving measures and a trimmer business structure pay dividends.

According to financial research group Zacks, on top of the cost cutting initiatives, the company is also starting to show sure signs of a recovery in consumer interest for its products, after a continued downturn in its retail sales worldwide over the past two years.

In an effort to streamline the business, the company has closed a number of its divisions worldwide, including operations in Europe and the Asia Pacific region, and has also strengthened its executive structure, with a number of new appointments, including a new CEO, Sheri McCoy.

Second quarter set to continue improving performance​

The forecast is that the second quarter will be the second quarter to show an improving financial, following six consecutive quarters where the company underperformed.

It is this combination of improved cost management and demand for its products that makes analysts at Zacks conclude that Avon Products is now in a position to deliver ‘decent’ earnings growth.

In view of the continued improvement in the company’s financial performance and its projected improvement, Zacks had upgraded the company’s share options to a Rank #1, which is a strong buy.

First quarter provided first positive results​

For the first quarter of 2013, the company reported that net sales fell by 4 percent to $2.5bn, a figure that was flat in constant dollars, when taking into account the positive impact of currency translations.

This figure reflected a 5 percent dip in reported beauty sales, while personal care, color and skin care fell by 3 percent, 6 percent and 12 percent respectively, while fragrance bucked the downward trend with sales growing 1 percent on a reported basis.

But despite the lack luster sales figures, the company’s restructuring program is showing signs of improving the business dynamics, reflected by the fact that share prices rose 6.3 percent to $23.65 – a 52-week high. 

Beauty industry looking good!​ 

Avon’s uptick also reflects the general performance of the beauty category, which the market researcher says has consistently returned steady growth as a category during the recent economic downtown, propelled mainly by particularly strong growth in emerging markets.

According to figures from Zacks, the global beauty category is currently valued at $400 billion and is projected to return market growth of 7 per cent annually, through to the year 2017.

This gives the beauty industry a ranking of 17 out of 265 in the Zacks Industry Rank, and the projections for the industry as a whole are that it will outperform significantly in the near- to mid-term.