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Why Is Avon Moving Its Head Office to the UK?

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Price movement of Avon Products

Avon Products (AVP) rose by 14.1% to close at $4.79 per share at the end of the third week of March 2016. The stock’s price movements on a weekly, monthly, and year-to-date (or YTD) basis are 14.1%, 24.1%, and 18.3%, respectively.

Currently, AVP is trading 21.0% above its 20-day moving average, 42.1% above its 50-day moving average, and 11.9% above its 200-day moving average.

The Oppenheimer Mid-Cap Revenue ETF (RWK) invests 0.75% of its holdings in Avon. The ETF tracks a revenue-weighted index of the S&P Mid Cap 400 Index. The YTD price movement of RWK was 3.2% as of March 17, 2016.

The iShares Morningstar Small Value ETF (JKL) invests 0.39% of its holdings in Avon. The ETF tracks a market-cap–weighted index of US small-cap value stocks. The index selects stocks from the 90th to 97th percentiles of the market-cap spectrum using fundamental factors.

The market capitalizations of Avon’s competitors are as follows:

  • Colgate-Palmolive (CL) — $62.9 billion
  • Estée Lauder Companies (EL) — $34.7 billion
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Avon’s transformation plans for the next three years

Avon Products has made changes to its operating model, including the following:

  • Avon’s commercial business will ensure that all markets have consistent roles, responsibilities, and processes. This will lead to cost efficiencies and improved effectiveness.
  • Avon will reduce corporate infrastructure and transition its corporate headquarters to the United Kingdom.

These changes will reduce jobs by ~2,500 across multiple geographies.

On the financial side, the company expects to record total charges associated with these actions of ~$60 million before taxes in 1Q16. These charges are associated with employee-related costs. Avon expects to realize pretax savings of ~$30 million in 2016 associated with the reduction of ~1,700 jobs. It also expects to achieve annualized pretax savings of ~$65 million–$70 million starting in 2017.

Avon expects annualized pretax savings of ~$20 million in 2016 related to the elimination of the open positions.

Performance of Avon Products in 4Q15 and 2015

Avon Products reported 4Q15 net sales of $1,607.3 million, a fall of 20.2% compared to net sales of $2,014.1 million in 4Q14. Sales of its beauty and fashion and its home categories fell by 20.9% and 14.4%, respectively, in 4Q15 compared to 4Q14.

Its net income and EPS (earnings per share) fell to -$333.4 million and -$0.76, respectively, in 4Q15, compared to -$330.7 million and -$0.75, respectively, in 4Q14.

2015 results

In 2015, AVP reported total revenues of $6,160.5 million, a fall of 19.4% YoY (year-over-year). It reported an operating profit of $165.0 million in 2015 compared to $434.3 million in 2014.

Its net income and EPS fell to -$1,148.9 million and -$2.60, respectively, in 2015, compared to -$388.6 million and -$0.88, respectively, in 2014.

Meanwhile, its cash and cash equivalents and inventories fell by 26.6% and 11.8%, respectively, in 2015. Its current ratio fell to 1.1x in 2015 compared to 1.4x in 2014.

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