Santa may have gone back to the North Pole until next year, but I'm always making lists and checking them twice to find out which companies have been naughty and nice. With our calendars having rolled over to the new year, it's time we take a closer look at the most valuable global brands.
Yesterday, I examined three companies within Interbrand's top 100 global brands list that I felt could be fantastic buys in 2013. Today, we're going to turn the tables and examine three big brand-name stocks you'd be better off avoiding in 2013.
Avon Products (AVP +0.00%)
You can look just about anywhere and you'll see signs of success in the personal care products sector. Ulta Salon (ULTA +0.48%), a beauty, fragrance, and personal products retailer, recently recorded a blistering rise in same-store sales of 7.4% for December. Avon hasn't been nearly as lucky, reporting an 81% decline in profits during the third quarter as it slashed its dividend by 74% and announced drastic cost-cutting measures designed to save $400 million within the next three years.
For Avon, the No. 71 company on Interbrand's top 100 list, there really isn't a single factor working in its favor. Foreign currency translation is working against it, color and skincare products dropped by 1% and 3% in constant dollar terms, and margins dipped. Even stranger, costs rose due to higher employee compensation, yet the number of active representatives fell 12% in North America and Asia-Pacific while rising just 2% in Europe, the Middle East and Africa. In short, if it could go wrong, it has for Avon, and shareholders are looking at a lengthy turnaround campaign. The company was foolish (small "f") to turn down privately held Coty's bid last year, and now it'll spend the next three years simply trying to right the ship.
Adobe Systems (ADBE 2.12%)
Putting aside my irritation with Flash Player plugin crashes, just what were traders thinking when they pumped up shares of Adobe after its earnings report last month called for EPS and revenue that were well below Wall Street's estimates?
Adobe, ranked No. 78 on Interbrand's list, is gearing up for the future by attempting to move a majority of its existing customers to its cloud-based Creative Cloud platform. Growth in customers has been impressive thus far, but as I noted last month, we're talking about a transition that's going to take nearly three years to complete. In the meantime, costs are going to rise as it spends heavily on its cloud platform and total profits are going to suffer in the meantime. Adobe's guidance of $1.40 in EPS on $4.1 billion in revenue was far below the $2.35 and $4.47 billion Wall Street expected. At 27 times 2013's earnings, I don't think you want to have anything to do with Adobe, a company that historically has had a hard time generating any sort of earnings consistency.
Sony (SNE +3.03%) and Panasonic (PC +0.00%)
If this were Jeopardy!, consider this your Daily Double! Both Japanese electronics manufacturers are in such poor shape that I've decided to just combine them into one selection.
Ranked as the No. 40 and No. 65 biggest brands worldwide, respectively, Sony and Panasonic are struggling from a multitude of problems that primarily stem from the commoditization of all things electronic. With the emergence of cheap labor forces in China and India, consumers simply aren't willing to pay significant premiums for Sony and Panasonic products any longer. Furthermore, both companies placed a lot of their future growth in their television lines, which has turned out to be a poor choice. Weaker pricing and margins have caused Sony to lose money in its TV segment for eight straight years, while Panasonic recently took a $10.2 billion writedown to restructure its operations.
The greatness of the Japanese electronics manufacturer is long gone and these two companies are in the grips of a slow death spiral.
