Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Avon Products (NYSE:AVP) were trading roughly 7% lower around 12:50 p.m. today after bottoming out at a loss of more than 10% in early trading. Investors are bailing out after the cosmetics company reported weak first-quarter financial results before today's opening bell.
So what: Avon's quarterly revenue fell 18% year-over-year to $1.8 billion, which the company blamed on currency headwinds -- its revenue was actually up 1% year-over-year in constant-currency terms. Avon's adjusted EPS also collapsed by 67% year-over-year to a mere $0.04 per share. The company's GAAP bottom line actually rose 13%, but was still in a deep hole at a loss of $0.33 per share. Analysts had expected Avon to report $1.83 billion in revenue and $0.07 in adjusted EPS.
Avon's full-year guidance also looks rather grim due to ongoing currency headwinds, as the company now expects revenue to fall by 17% from 2014's result. This would produce full-year revenue of roughly $7.4 billion, which is a fair bit weaker than Wall Street's $7.77 billion consensus for 2015.
Now what: Avon's reliance on Latin America has hurt it tremendously over the past two years as inflationary spirals in many Latin American currencies, coupled with a strong dollar at home, have contributed to the company's 65% share slide since mid-2013. The company's regional highlights show this perfectly. Latin American revenue, down 22% year-over-year, was actually up 3% in constant dollars. European, Middle Eastern, and African revenue was down 16% year-over-year but up 9% in constant dollars. The only constant-dollar decline came from North America, which produced 17% less constant-dollar revenue than it did a year ago.
Avon could recover in top-line terms if its global currency problems abate, but that doesn't address its cratering EPS, which has fallen far into the red in GAAP terms over the past few years. An adjusted per-share profit is also cold comfort to investors when Avon's free cash flow has been effectively stagnant for years. This stock has been a falling knife for some time, and a lot of investors have cut themselves trying to grab it. Today's results won't give anyone a better chance to catch Avon safely when (or if) it eventually recovers.