Avon posts big losses against currency headwinds and shaky global economy

04-Nov-2015 - Last updated on 04-Nov-2015 at 16:44 GMT

Avon Products was hit harder than most by a strong dollar, together with a slow performance from its North American operations and economic challenges in developing markets such as Brazil.

The company reported that net sales during its third quarter were down 22% to $1.7bn, which translated into a 2% decline in constant dollars, underling a massive hit from currency translations that totalled 20%.

The big sales decline also impacted net profits significantly, which were down from a small profit of $92m in the corresponding period last year, to reach a loss of $697m for the quarter.

Liz Earle and Brazil were the problem

The company stressed the impact of new tax requirements in Brazil that hit business in that market, while the comparison from last year was also hit by the divestiture of the Liz Earle business.

Brazilian tax increases were made for VAT and a new industry production tax impacting the results by approximately 4%, while the loss of the Liz Earle business hit revenues by approximately 1%.

In its release highlighting the results, the company pointed out that without the effects of the tax hikes in Brazil and the Liz Earle comparison, constant-dollar revenues would have grown by approximately 3%.

Volume and beauty sales both down

On top of this volume sales were also hit throughout the Americas, with the combined total units sold in both North and South America down 6% compared to the same period last year.

The beauty division was also particularly hard hit, with sales down 23% at constant currency levels and down 1% in constant dollars, a figure again impacted by the loss of the Liz Earle business and the Brazil tax hikes.

"This was a difficult quarter impacted by currency and other macro pressures, and our financial results were not where we would like them to be," said Sheri McCoy, chief executive officer of Avon Products.

Regional performance

On a regional basis the company’s mainstay Latin America market saw revenues slip 26% to $790.9m, while in North America the constant revenues were down 17% to $230.6m – a figure that was only marginally impacted by currency translations.

Perhaps the best underlying performance was seen in Europe, where sales were up 3% at a constant currency rate to $499.2m, but down 19% when factoring in currency translations.

In Asia Pacific revenues were down 16% to $146.2m, as growth in the Philippines was offset by a poorer performance throughout the region, and particularly in China.

Looking ahead to the full financial year 2015, the company says that its constant-dollar revenue is set to be in line with forecasts, while the impact of foreign currency translations is expected to negatively impact the results by 19%.