Avon losses are bigger than expected

By Simon Pitman contact

- Last updated on GMT

Avon losses are bigger than expected

Related tags: United states dollar

Avon results show a big drop in sales on the back of currency translations and tax costs, leading net profits to come in below market expectations.

Sales for the fourth quarter fell by 20% to $1.6bn, but were up by 3% in constant dollar terms, reflecting the huge impact from currency translations caused by the strength of the US dollar against most major global currencies.

The company also stated that the decline was impacted by tax costs related to the Brazil market and the realignment of the North America business, and factoring these costs out of the equation sales would have increased at 6% in constant dollar terms.

Latin America and Asia Pacific lead declines

Sales volumes were impacted by declines in both the Latin America and Asia Pacific regions, with the number of total units sold falling by 2% on a global basis, while an improvement in the price/mix ratio, up by 3% on the back of price increases, helped to counterbalance losses from the decline in the number of units sold.

In the mainstay beauty division sales declined by 21% but were up by 2% at constant dollar rates- a figure that was impacted by tax costs and the divesture of the Liz Earle business.

Restructuring of North America business costs

The company stated that its bottom line was significantly impacted by a $340m loss from discontinued operations, associated with charges on the anticipated sale of the North America business, which is expected to happen later in 2016.

Avon North America is due to become a privately held business in 2016 following the company’s acceptance of a $605m equity investment from Cerberus Capital Management in December of last year.

“We are on track to close our partnership with Cerberus and fully engaged in executing our transformation plan," ​said Sheri McCoy, Chief Executive Officer of Avon Products.

Net loss grows

The tax hits and decline in sales meant that the company’s net loss increased to $333.4m, compared to a loss of $330.7m in the corresponding period last year, a figure that was above Wall Street estimates.

Looking at the results on a regional basis, in the company’s biggest regional division, Latin America, sale were down 26%, negatively impacted by tax items in Brazil as well as the fact that revenues were down by 44% in that market.

In Europe, the Middle East and Africa, revenues were down  by 13% but up by 6% in constant dollars, whereas in Asia Pacific revenues were down 16% and down 8% in constant dollars, led by declining sales in China.

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