Avon shares down 7.4 percent on analyst downgrade

NEW YORK - Shares of Avon Products Inc. declined on Friday after an analyst downgraded shares of the cosmetics company and forecast weakness from a stronger dollar and ongoing economic weakness.

The stock lost $1.63, or 7.4 percent, to $20.32 in afternoon trading.

BMO Capital Markets analyst Connie Maneaty downgraded the stock to "Market Perform" from "Outperform" and said a stronger dollar will hurt Avon, as the company records a large portion of sales abroad. A stronger U.S. dollar makes Avon's more expensive to overseas shoppers.

Maneaty said Avon's international sales account for between 75 percent to 80 percent of total revenue. Also, about 60 percent to 65 percent of sales are in weak Latin American and European currencies.

"Avon won't benefit much from the partial recovery of the euro as it represents just 4 percent to 5 percent of sales," Maneaty added.

Avon reported sales for the nine months ended Sept. 30 of $7.81 billion, up 15 percent from a year earlier.

Maneaty said the combination of slowing gross domestic product growth, modest price increases and modest exposure to improving commodity costs indicate an earnings decline in 2009 before a rebound in 2010.

While Avon typically attracts more sales representatives during economic downturns, it takes time to train new recruits, Maneaty said. "We think a benefit from them isn't likely until at least the second half (of the year)," Maneaty wrote.

Elsewhere in the sector, Estee Lauder Cos. and Elizabeth Arden Inc. lowered their full-year earnings outlooks, partly because of a softer-than-expected holiday season.

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