Avon Products Inc. (AVP - Free Report) reported dismal first-quarter 2017 results. The company posted adjusted loss from continuing operations of 7 cents per share for first-quarter 2017, lagging the Zacks Consensus Estimate of break-even. However, results were in line with the prior-year loss per share of 7 cents.

On a reported basis, the company posted loss per share of 10 cents compared with a loss of 36 cents in the year-ago quarter.

Overall, Avon’s shares have declined 23.8% in the past six months, wider than the Zacks categorized Cosmetics & Toiletries industry’s decline of 10%.

Deeper Insight

Total revenue rose 2% year over year to $1,333.1 million and surpassed the Zacks Consensus Estimate of $1,327 million. On a constant currency basis, total revenue declined 1%.

Active Representatives declined 3% compared with the prior-year quarter, while Ending Representatives dipped 1%. Active Representatives were hurt by decline in all segments except North Latin America, which was relatively flat. Ending Representatives fell due to decline in Asia Pacific. Average orders were up 2% driven by growth in all segments, offset by decline in Europe, Middle East & Africa (EMEA).

Adjusted gross margin expanded 90 basis points (bps) year over year to 61.2% on the back of favorable price/mix.

Adjusted operating profit increased 29.1% to $38.7 million, while adjusted operating margin contracted 130 bps to 2.9%. Operating margin gained from improved price/mix and lower costs to implement restructuring in the current year, which was more than neutralized by higher bad debt expenses – particularly in Brazil, an out-of-period adjustment related to equity compensation and higher transportation costs.

Segment Performance

Avon’s revenues of $507.5 million in Europe, the Middle East and Africa slipped 2% year over year. On a currency neutral basis, revenues dipped 4%, mainly driven by a 3% fall in Active Representatives and 1% decline in average orders. Price/mix in the region went up 9%, while units sold declined 13%. Ending Representatives were down 1%.

Revenues in South Latin America increased 17% year over year to $499.2 million and 2% in constant-dollars, mainly driven by 4% growth in average orders partly negated by 2% decline in Active Representatives. Units sold were down 1%, while Ending Representatives increased 1% and price/mix rose 3%.

North Latin America reported a revenues decline of 6% year over year to $193.2 million, while the same increased 2%, in constant-dollars, benefiting from a 2% gain in average orders. Also, price/mix escalated 3% while units sold fell 1%.

The Asia-Pacific division’s revenues fell 8% to $124.2 million and decreased 5% in constant dollars. The decline was due to lower revenues in most markets, neutralized by modest growth in Philippines. A 8% fall in Active Representatives contributed largely to the decline, partly mitigated by 3% increase in average orders. During the quarter, Ending Representatives declined 8% and units sold fell 6%, and price/mix dropped 2%.

Financial Details

Avon ended the first quarter with cash and cash equivalents of $560 million, long-term debt of $1,874.9 million, and shareholders’ deficit of $820.5 million (excluding non-controlling interests).

Transformation Plan Update

In 2016, the company made significant progress toward the Transformation Plan that was announced in Jan 2016. In the first year of this three-year plan, the company surpassed cost saving targets and considerably improved balance sheet. Evidently, in 2016, the company went ahead of schedule and realized roughly $120 million in savings. Further, as part of improving financial resilience, management reduced debt by about $260 million this year, which also surpassed its targeted reduction of $250 million.

Avon’s Transformation Plan mainly focuses on investing in growth, enhancing cost structure and improving financial flexibility. In this regard, management plans to invest nearly $350 million over a three year period starting 2016, including $150 million toward media and social selling; and $200 million for service model evolution and information technology. This is mainly aimed at bolstering the overall Representative experience.

Further, the company is on track to deliver cost savings of $350 million over a three-year period, including $200 million from supply chain reductions and about $150 million from other cost reductions.

In 2017, the company targets cost savings of $230 million, including run-rate savings from 2016, along with in-year savings from current year initiatives. The company stated that savings realized through the first quarter indicate that it is on track with its goals for 2017.

Outlook

For 2017, the company expects constant-dollar revenue growth in the low single-digits range. Further, it anticipates adjusted operating margin to grow about 100 to 140 bps. Moreover, the company expects free cash flow to be slightly positive, including the planned $65 million increase in capital expenditures.

These expectations are based on projections of modest currency tailwinds as well as Active Representatives growth of 0% to 1% in second-half 2017.

Avon Products, Inc. Price, Consensus and EPS Surprise

Avon Products, Inc. Price, Consensus and EPS Surprise | Avon Products, Inc. Quote

Zacks Rank

Avon currently carries a Zacks Rank #3 (Hold). Investors can count on better-ranked stocks like The Children’s Place Inc. (PLCE - Free Report) , sporting a Zacks Rank #1 (Strong Buy), Inter Parfums Inc. (IPAR - Free Report) and Nu Skin Enterprises Inc. (NUS - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place has an average positive earnings surprise of 39% in the trailing four quarters. The stock, with a long-term EPS growth rate of 8%, has seen positive estimate revisions in the last 60 days.

Inter Parfums has jumped nearly 14.4% year to date. Moreover, the company has an average positive earnings surprise of 7.4% in the trailing four quarters.

Nu Skin has grown nearly 16.4% year to date. The stock has a long-term EPS growth rate of 9.2%.