Avon Products (AVP) Misses Q3 EPS by 1c; Updates on Transformation Plan

November 3, 2016 6:46 AM EDT

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Avon Products (NYSE: AVP) reported Q3 EPS of $0.02, $0.01 worse than the analyst estimate of $0.03. Revenue for the quarter came in at $1.41 billion versus the consensus estimate of $1.42 billion.

Transformation Plan

In January 2016, the Company announced a three-year Transformation Plan, which includes investing in growth, reducing costs in an effort to continue to improve cost structure and improving financial resilience.

As a result of this plan, the Company expects pre-tax annualized cost savings of approximately $350 million after three years, with an estimated $200 million from supply chain reductions and an estimated $150 million from other cost reductions. These pre-tax cost savings are expected to be achieved through restructuring actions as well as other cost-savings strategies that will not result in restructuring charges. The Company plans to reinvest a portion of these cost savings in growth initiatives, including media, social selling and information technology systems that will help the Company modernize its business. The Transformation Plan was initiated in order to enable the Company to achieve its long-term goal of a targeted low double-digit operating margin and mid single-digit constant-dollar revenue growth.

The Company is on track to deliver the targeted $350 million in Transformation Plan savings over the three years. For 2016, the Company has accelerated certain cost savings initiatives and is ahead of schedule on realizing the targeted $70 million of savings, as well as savings to cover the approximately $20 million in stranded costs that resulted from the separation of the Company's North America business. Through the nine months ended September 30, 2016, the Company has already realized approximately $80 million of the combined $90 million targeted savings.

With respect to improving its financial resilience, the Company targeted to reduce debt by approximately $250 million during 2016. The steps taken through September 30, 2016, include the issuance of $500 million of senior secured notes due August 2022, an approximate $301 million tender of near-term public notes, as well as a reduction in the debt of foreign subsidiaries of approximately $33 million. In addition, during October 2016, the Company repurchased approximately $163 million of debt and issued notices of prepayment on the remaining public notes due March and July 2018 of approximately $238 million. In total, as a result of these actions, we will have reduced debt by approximately $235 million in 2016 and will have extended the Company's maturity profile, with no long-term debt due until March 2019.

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

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