Avon share price levels off after big fall

By Simon Pitman

- Last updated on GMT

Related tags: Cent, Stock market, Avon

The investment world showed its disappointment in Avon's recently
announced quarterly results with a flurry of market activity that
saw the company's share price fall by more than five dollars.

On July 28 the share price stood at €32.64, a figure that had fallen to €27.40 by close of trade yesterday, following the announcement of the results on July 31.

Although the share price has leveled off in the past few days of trading, the fall in value of more than 15 per cent reflects a loss of confidence in the company's performance.

Athough the results showed that sales had gone up, underlying growth was below analyst's expectations, particularly in view of the heavy restructuring charges the company incurred.

During its second quarter net income dropped 54 per cent to reach $150.9m on the back $2.1bn in sales, up 5 per cent on the same period last year.

This figure was impacted by a $49m charge, as part of its massive restructuring program, introduced in the last quarter of 2005, which saw profits tumble by 54 per cent.

The restructuring costs have included organizational realignments and a reduction in the workforce, particularly in its middle management that has seen the elimination of more than 25 per cent of its management positions and lowered the number of management tiers from 15 to eight.

To date the company has now eliminated 10 per cent of its 43,000 workforce worldwide.

Avon's restructuring scheme aims to save the company around $100m a year, but will have to be fed by top line growth that is currently not happening.

Despite the emergence of a leaner and more efficient operation, underlying growth market experts believe that underlying growth needs to be higher if the company is going to emerge from the $500m restructuring program as a more powerful player.

In particular experts have expressed worries that Avon is not succeeding in bringing about a more pronounced turn around, despite the increased spend on advertising.

"The fact that Avon's organic sales slowed to 1 percent, losing share in a global industry growing at 4 per cent despite a 78 per cent increase in media, heightened investor concerns,"​ Morgan Stanley analysts wrote in a client note last week.

Likewise, four of the company's six regions reported that underlying growth was down against general market growth. In particular the company's key North American market, which accounted for 31 per cent of the company's total income in 2005, has failed to shine with a flat performance emphasized by falling sales volumes..

Likewise Asia-Pacific also proved to be disappointing, with sales down 10 per cent for the quarter on a poor Japanese market performance.

With restructuring expected to make another big dent in the next quarterly results, Avon executives will undoubtedly be focusing on various strategies aimed at boosting sales.

Related topics: Business & Financial

Related news

Show more

Follow us

Featured Events

View more

Products

View more

Webinars