Despite its stock's falling price today, Avon Products
On their surface, first-quarter numbers appear to be rock solid: total revenues up 7%, operating profit up 14%, and EPS up 16%. This follows the company's Feb. 17 announcement of an 18% dividend hike and a new $1 billion share repurchase program over the next five years, to be funded quite smartly from internal cash flow. It's certainly not the kind of earnings release that should make investors nervous.
But within the first hour of trading after the release, the stock moved down about a dollar, nearly 2.5% off the previous close of $40.08. It seems that results in North America were on shifting sands, with revenue down 5%, driving a 14% reduction in operating profit. The company made up for that with a strong showing overseas, with international sales up 13% and operating profit up 19%. There was standout growth in Russia and China.
It seems that nearly all large U.S. retailers these days are pointing to an expected sales eruption in China to drive long-term growth prospects. You hear it continually from the likes of Wal-Mart
Is the street treating Avon fairly? I would answer with a qualified yes at this point. At 22 times trailing 12-month earnings, the stock is not cheap by any means. While it's true that North America represents only one-third of Avon's worldwide sales and barely 25% of its operating profit, until the company reignites North American revenues and operating profits, the stock could stay on a rocky road for a while.
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Fool contributor Timothy M. Otte is married to a Mary Kay representative and welcomes comments on his articles. He owns shares of Wal-Mart but none of the other companies mentioned in this article.
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