Besides these key points, it was really more of the same for Avon. Revenue dropped 1% to $2.96 billion as beauty product sales dropped 2% and non-GAAP margins decreased 130 basis points. What I found more disturbing was that the number of active representatives actually rose by 1%, yet, accounting for negative currency translations, sales fell by an aforementioned 1%. Even if you exclude the currency translations, why should I, in my right mind, be excited about 1% growth? Avon turned down a buyout offer from Coty at an extremely hefty premium last year and still boasts $2 billion in net debt, down just $77 million over the previous 12-month period. If you remove the pounds of makeup, this is actually a very ugly investment.
Rackspace
Just last month I warned investors that the valuation on open-cloud specialist Rackspace might be a little aggressive — it didn’t take but six weeks to prove my point.
For the recently ended quarter, Rackspace reported a 25% increase in year-over-year revenue to $353 million as profit grew 19% to $30 million. Unfortunately, the market wasn’t in a forgiving mood and the Street had expected Rackspace to report $355.4 million in revenue. Although the miss may seem as trivial as VMware, Inc. (NYSE:VMW)‘s, which I highlighted two weeks ago, it nonetheless pointed to a fifth straight quarter of declining sales growth.
VMware, which runs private cloud-based enterprise software, and Rackspace, which deploys its own open-cloud software that doesn’t tie its enterprise customers to one specific vendor, both noted that their results struggled as they transition to their next-generation software. What this means for investors of both VMware and Rackspace is that they can expect slower growth in the interim as these transitions are made.
For VMware, I saw this as an opportune time to cash in on a company still growing healthfully in the double digits and valued at just 21 times forward earnings and 16 times cash flow. For Rackspace, it looks like another reason to run for the exits. Even after its huge drop, Rackspace is valued at 49 times forward earnings and 22 times cash flow. This also doesn’t factor in the potential psychological concerns enterprises may have about an open-cloud platform across multiple vendors. Keep in mind I’m not implying that Rackspace in any way has a security problem, but the perception that one could arise in an open-cloud space is another reason that I’d keep my distance for the time being.
The article 3 Earnings Reports That Caught My Attention Last Week originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of VMware. Motley Fool newsletter services have recommended buying shares of Rackspace Hosting and VMware.
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