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Avon Products, Inc. (AVP) Post Smaller Q1 Profit

May 1, 2014 7:10 AM EDT
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Price: $5.60 --0%

Financial Fact:
Operating profit: 112M

Today's EPS Names:
SHIM, KOD, HEWA, More
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Avon Products, Inc. (NYSE: AVP) reported Q1 EPS of $0.12, which may not compare to the analyst estimate of $0.21. Revenue for the quarter came in at $2.2 billion versus the consensus estimate of $2.2 billion.

Impacts from the Company's Move from the Official Exchange Rate to the SICAD II Foreign Exchange Rate to Remeasure its Venezuelan Business

In February 2014, the Venezuelan government announced a new foreign exchange system, SICAD II, which began operating on March 24, 2014. As the SICAD II exchange rate represents the rate which better reflects the economics of Avon Venezuela's business activity, the Company is utilizing this rate to remeasure its Venezuelan operations as of March 31, 2014. At March 31, 2014, the SICAD II exchange rate was approximately 50 Bolivars to the U.S. dollar, as compared with the official exchange rate of 6.30 Bolivars to the U.S. dollar, that the Company used previously, which caused the recognition of a devaluation of approximately 88%.

  • As a result of the change to the SICAD II rate, the Company recorded an after-tax loss of $42 million ($54 million in other expense, net and a benefit of $12 million in income taxes) in the first quarter of 2014, primarily reflecting the write-down of monetary assets and liabilities. Additionally, certain non-monetary assets are carried at their U.S. historic dollar cost subsequent to the devaluation. As a result of using the U.S. historic dollar cost basis of non-monetary assets, such as inventories, these assets continue to be remeasured at the applicable rate at the time of acquisition. As a result, the Company determined that an adjustment of $116 million to cost of sales was needed to reflect certain non-monetary assets at their net realizable value, which was recorded in the first quarter of 2014. These items had an aggregate negative impact of $0.36 per diluted share.
  • Assuming a SICAD II exchange rate of approximately 50 Bolivars to the U.S. dollar for the remainder of 2014, the Company estimates an additional negative impact to 2014 operating profit and net income as a result of using the U.S. historic dollar cost basis of certain non-monetary assets of approximately $21 million, primarily during the second quarter of 2014.
  • Avon Venezuela's income statement for the quarter ended March 31, 2014 was remeasured at the official rate of 6.30 Bolivars to the U.S. dollar, not at the SICAD II exchange rate.
  • The use of the SICAD II exchange rate is expected to meaningfully reduce Avon Venezuela's reported revenue and Adjusted operating profit, beginning in the second quarter of 2014.

For earnings history and earnings-related data on Avon Products, Inc. (AVP) click here.



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