Avon Rises Most in Almost Four Decades on Silpada, Profit
Avon Products Inc. rose the most in almost four decades after fourth-quarter adjusted profit topped analysts’ estimates and the company said it would evaluate alternatives for the Silpada jewelry unit.
The shares climbed 20 percent to $20.79 at the close in New York for the biggest gain since January 1974. The shares dropped 18 percent last year for a third straight annual decline.
Chief Executive Officer Sheri McCoy, who took the helm of the world’s largest door-to-door cosmetics seller in April, is cutting about 1,500 jobs and leaving the South Korea and Vietnam markets as part of a plan to save $400 million by the end of 2015. McCoy said today on a conference call that she would seek strategic alternatives for the company’s Silpada jewelry unit, where sales fell 18 percent in the fourth quarter.
“While there are still many challenges, there is also fundamental improvement,” Connie Maneaty, an analyst at Bank of Montreal in New York, wrote in a note today. The two markets that account for about three quarters of Avon’s sales -- Latin America and the company’s Europe, Middle East and Africa region -- are growing, said Maneaty, who rates the shares outperform, the equivalent of a buy.
Excluding items such as restructuring charges and costs to impair some assets, fourth-quarter profit was 37 cents a share, New York-based Avon said today in a statement. That exceeded the 27-cent average estimate of 15 analysts surveyed by Bloomberg.
The net loss widened to $162.2 million, or 37 cents a share, from a loss of $400,000, or breakeven on a per-share basis, a year earlier, the company said.
Sales fell 1.4 percent to $2.96 billion. Analysts estimated $3.01 billion, on average. Beauty sales rose 1 percent excluding the effect of currency fluctuations, and the number of active representatives increased 1 percent.
Avon bought Silpada Designs Inc. in July 2010 for about $650 million for a company that had annual sales of about $230 million at the time. The company today said it took a non-cash, pretax impairment charge on the unit of $209 million, or 31 cents a share, for the fourth quarter. Last year, Silpada had about $155 million in sales, Chief Financial Officer Kimberly Ross said on today’s call.
The period also included restructuring charges of about $58 million, or 9 cents a share, before taxes, and a 3-cent-a-share benefit for releasing a provision associated with the cost of acquiring U.S. dollars in Venezuela.
Avon said it determined that it may need to repatriate some offshore cash to meet funding needs in the U.S. and is no longer asserting that the undistributed earnings of some foreign units are indefinitely reinvested. The change resulted in an additional provision for income taxes of $168 million, or 39 cents a share.
Last week, the Venezuelan government instituted its fifth devaluation in nine years, lowering the bolivar by 32 percent, to 6.3 per dollar. Avon is one of the most exposed companies, with Venezuela representing about 5 percent of sales and 8 percent of operating profit, BMO’s Maneaty wrote in a Feb. 11 note.
Avon said the devaluation will result in charges of about $50 million in the first half of this year and an after-tax loss of about $50 million in the current quarter as it writes down assets related to that business.
Fourth-quarter sales rose about 2 percent in Latin America and 1 percent in Europe, the Middle East and Africa, Avon said.
Sales in North America fell 12 percent in the quarter, hurt by Silpada and a decrease in the number of representatives. Avon was disappointed with some product introductions and needs to improve marketing and branding in its home market, McCoy said during the call.
With sales representing about 15 percent of Avon’s total revenue, the U.S. “is not business they can afford to ignore,” Maneaty said in a telephone interview. Still, “the U.S. has had issues for the better part of 10 or 20 years, so it’s not going to be resolved any time soon.”
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