Why Avon Products Stock Sank 11% on Thursday

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What happened

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Shares of Avon Products, Inc. (NYSE: AVP) stock closed down 10.7% on Thursday, after Avon reported its financial results for the second quarter of 2017.

So what

The earnings news was even worse than last quarter. Sales declined 3% to $1.4 billion. Operating profit margins plunged 430 basis points to 2.3%. By the time interest on the company's debt, taxes, and other expenses had been deducted, Avon ended up with a loss of $0.12 per share on its bottom line -- a huge reversal from last year's Q2 profit of $0.06 per share.

It probably goes without saying that investors were not pleased with the result. After all, Wall Street had told investors to expect profits of $0.07 per share from Avon. The fact that the company failed to earn any profit at all, but lost money instead, naturally had people a bit upset.

So upset, in fact, that it appears Avon has decided to fire its CEO. In an announcement separate from earnings, Avon revealed that after leading Avon for the past five years, CEO Sheri McCoy will be leaving the company on March 31, 2018.

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Now what

Avon's board has hired executive recruitment firm Heidrick & Struggles to find a replacement for Ms. McCoy. No particular timeline for the search has been set, but obviously, a decision before March 31 would be ideal.

In the meantime, Avon will struggle on through "year two of its three-year transformation plan," aiming to "reduce costs" while simultaneously trying to find the cash to "invest in growth." So far, the company succeeded in cutting annual operating costs by $120 million last year and is targeting a reduction of $230 million this year.

If all goes as planned (hint: so far, things aren't going as planned), management hopes to close out the year with "low single-digits" growth in sales, a percentage point or so in "adjusted operating margin expansion," and at least a small surplus in free cash flow.

Here's hoping.

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Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.