(AVP) Avon Products Incorporated – Bear of the Day

Avon Products, Inc.’s (AVP) second-quarter 2012 earnings of $0.20 per share missed the Zacks Consensus Estimate by a penny and plummeted 59% year over year. Moreover, the company’s net sales dipped 9%, reflecting a fall of 4% in total units. The disappointing result was primarily due to sluggish performance at each of the company’s regions where it operates, along with increased input costs and operating expenses.

We believe the company’s initiatives to change the product and price mix, improve earnings and reposition the business in the U.S. market will require significant advertising and promotional expenditures, which may weigh upon its margins. Further, we believe sluggish discretionary spending along with intense competition and exposure to foreign currency may undermine the company’s future prospects.

Currently, we maintain a long-term Underperform recommendation on the stock. Our long-term Underperform recommendation on the stock indicates that it would perform below the broader market. Our target price of $15.00, 18.1x 2012 EPS reflects this view.

Zacks Investment Research

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