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Moody’s Downgraded Avon Products with a ‘Negative’ Outlook

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Price movement 

Avon Products (AVP) fell by 4.2% and closed at $3.85 per share at the end of the fourth week of June 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -4.2%, -1.8%, and -4.9%, respectively. This means that Avon Products is trading 5.8% below its 20-day moving average, 9.9% below its 50-day moving average, and 0.65% above its 200-day moving average.

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Related ETFs and peers

The Oppenheimer Mid-Cap Revenue (RWK) invests 0.75% of its holdings in Avon. RWK tracks a revenue-weighted index of the S&P Mid Cap 400 Index. RWK’s YTD price movement was 4.0% on June 24, 2016.

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

The market caps of Avon Products’ competitors are as follows:

  • Colgate-Palmolive (CL) – $63.0 billion
  • Estee Lauder Companies (EL) – $33.1 billion

Moody’s downgraded Avon Products

Moody’s Investors Services downgraded the following ratings of Avon Products:

  • Corporate Family Rating (CFR) from Ba2 to Ba3
  • Probability of Default Rating (PDR) from Ba2-PD to Ba3-PD
  • Senior unsecured instrument rating from Ba3 to B1

Moody’s affirmed the stock’s SGL-2 and it gave the stock a “negative” rating outlook.

The downgrade reflects the separation of the company’s North American business, risk associated with executing the new transformational plan, exposure to high volatile emerging markets, and challenging economic conditions in its key regions.

Performance in 1Q16

Avon Products reported fiscal 1Q16 total revenue of $1.30 billion—a fall of 15.8% compared to total revenue of $1.6 billion in fiscal 1Q15. Sales of the beauty and fashion and home categories fell by 17.5% and 13.3%, respectively, in fiscal 1Q16—compared to fiscal 1Q15.

Its net income and EPS (earnings per share) fell to -$165.9 million and -$0.38, respectively, in fiscal 1Q16—compared to -$147.3 million and -$0.33, respectively, in fiscal 1Q15. It reported non-GAAP EPS of -$0.07 in fiscal 1Q16—compared to $0.03, respectively, in fiscal 1Q15.

Avon Products’ cash and cash equivalents and inventories rose by 9.7% and 9.6%, respectively, in fiscal 1Q16—compared to fiscal 4Q15. Its current ratio rose to 1.4x in fiscal 1Q16—compared to 1.1x in fiscal 4Q15.

For ongoing analysis of this sector, visit Market Realist’s Consumer Discretionary page.

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