Avon Products Inc. continues to deal with the fallout from a lackluster first quarter.
This story first appeared in the May 9, 2012 issue of WWD. Subscribe Today.
On Tuesday, rating agency Standard & Poor’s downgraded Avon’s corporate credit rating to “BBB-minus” from “BBB” and its short-term rating to “A-3” from “A-2,” due to the direct seller’s weaker-than-expected operating results.
On May 1, Avon reported that the company’s first-quarter profits slid 81.6 percent to $26.5 million.
“Today’s rating action reflects the company’s continued weak operating results, with the March quarter results weaker than expected and margins considerably declining and further deterioration of credit measures,” said Standard & Poor’s credit analyst Jacqueline Hui. The rating agency also cited ongoing costs tied to an investigation by the U.S. Securities and Exchange Commission; new management; operational issues in key markets, such as Brazil, and a lack of visibility on the company’s long-term strategy as factors that will continue to pressure sales and profitability.
“We believe a material operating turnaround over the next year will be difficult,” added Hui.
The move comes less than a week after Caris & Co. analyst Linda Bolton Weiser downgraded Avon to “Average” from “Above Average,” citing “disastrous margins.” She also cut the price target to $17 from $28 a share.
Shares of Avon closed at $19.77, down 1.49 percent, on Tuesday.