Why Avon Products, Inc. Stock Dropped Today

By Steve SymingtonFool.com

What:Shares of Avon Products were down 18.7% at 1:30 p.m. Wednesday after the cosmetics company announced weaker-than-expected third-quarter results.

So what:Quarterly revenue fell 22% year over year to $1.7 billion, hurt primarily by currency headwinds and macro economic challenges, and to a lesser extent by certain tax items in Brazil and its sale of Liz Earle in July. On a constant-currency basis, sales would have declined just 2%. And excluding the latter two items, sales would have climbed 3%. On the bottom line, that translated to a net loss of $697 million, or $1.58 per share, compared to net income of $0.21 per share in the year-ago period. Adjusted for one-time items -- most notably including a $53 million after-tax gain on the Liz Earle sale, and a $650 million non-cash income tax charge from establishing a valuation allowance for the amount of Avon's U.S. deferred tax assets -- Avon achieved a non-GAAP loss of $50 million, of $0.11 per share.

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Even so, analysts were anticipating slightly lower sales of $1.68 billion to result in adjustedearningsof $0.08 per share.

"This was a difficult quarter affected by currency and other macro pressures," added Avon CEO Sheri McCoy, "and our financial results were not where we would like them to be. Given the challenging environment, I'm proud of the progress our teams are making, driving solid top-line performance at the local level and continuing to make improvements in Representative engagement."

Now what:Avon also selectively reduced its guidance for 2015. Relative to its previous full-year outlook, Avon now expects constant-currency revenue to remain roughly unchanged, but also anticipates a roughly 19-point negative impact on reported revenue from foreign currency translation, a 100-basis-point drop in constant-currency adjusted operating margin, and a 300-basis-point decline in adjusted operating margin in reported dollars. Avon also still expects positive free cash flow for the year, "although less than the company's previous outlook of approximately $100 million."

In the end, this was a painful performance that, unfortunately, wasn't entirely surprising. Remember, shares plunged in recent months following reports Avon was possibly considering selling its ailing business, but was having trouble finding a buyer and might need a capital infusion. Given this quarter's unexpected loss and guidance reduction, however, it should be equally unsurprising the market is willing to bid shares of Avon down even further today. As it stands, I think investors would be wise to watch Avon's troubles unfold from the sidelines.

The article Why Avon Products, Inc. Stock Dropped Today originally appeared on Fool.com.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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