Stressed Out: Avon Products Regains Footing, But Is It Ready For Recovery?

 | Mar 09, 2016 | 4:45 PM EST
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This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list.

Avon Products (AVP) -- a member of Real Money's "Stressed Out" watch list -- has been able to climb back to the level it was at when it first announced its partnership with private equity firm Cerberus Capital Management on Dec. 17.

Cerberus made a $435 million initial investment in Avon Products through convertible perpetual preferred stock, while also purchasing an 80.1% stake in Avon North America for an additional $170 million.

"After a thorough, thoughtful and deliberate process by both parties, we are creating a strategic partnership that will improve Avon's performance and drive shareholder value," said Avon CEO Sheri McCoy at that time.

Investors weren't sold on the plan, however, and the stock fell as low as $2.38. But Avon has fought its way back up and today the company announced the conclusion of the deal with Cerberus.

Whether the move will pan out for the struggling beauty products firm remains to be seen.

During the company's fourth-quarter earnings call last month, McCoy was upbeat on Avon's prospects at it looks to focus on the burgeoning South American market. "Our operating performance for the fourth quarter and fiscal year was in-line with our most recent outlook. Looking back at 2015, our key local markets drove steady improvement in overall performance. Importantly, we improved year-on-year Active Representative trends – with full-year growth of 1%."

Fourth-quarter sales in South America were down 26% to $779.2 million -- though the company did point out that on a constant currency basis, revenue remained unchanged. Avon's Brazil sector saw the steepest decline, falling 44% (14% on a constant currency basis) while sales in Mexico dropped 13% (up 6% in constant currency).

Sales in the Europe, the Middle East and Africa fell 13%, year over year, to $669.5 million, and revenue from Asia was down 16% to $158.6 million.

The success of the company's strategy won't be apparent for some time, but retooling its infrastructure and being proactive about its position is certainly a positive sign for investors. 

For more on Real Money's 20 distressed companies to watch:

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out: Will the Real Avon Please Stand Up?

Stressed Out: Avon Is Calling -- Should You Answer?

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