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Why These 3 Companies Tanked: WTW, ARIA, AVP

NEW YORK (TheStreet) -- Weight Watchers (WTW)

Weight Watchers issued an unexpectedly negative 2013 forecast on Thursday, dragging shares down 20% to $32.11.

"While we are working aggressively on both near-term commercial activities and longer-term strategic initiatives, 2014 will be a very challenging year," CEO Jim Chambers said in a statement.

The weight-management company said it expects memberships to continue to decline through the company's next financial year, contributing to a decline in revenue expected to reach as high as the low double-digits.

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The New York-based company reported third-quarter earnings of $1.07 a share on revenue 8.5% lower than a year earlier of $393.9 million. Analysts surveyed by Yahoo! Finance had expected 84 cents a share on $386.5 million. Management said cost-cutting measures allowed the business to surpass third-quarter expectations but that the trend would not extend to the fourth quarter.

"To maintain financial flexibility and fund the company's transformation, the board has elected to suspend the dividend," said Chambers.

TheStreet Ratings team rates WEIGHT WATCHERS INTL INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate WEIGHT WATCHERS INTL INC (WTW) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its expanding profit margins over time. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and weak operating cash flow."

Ariad Pharmaceuticals

Ariad Pharmaceuticals plummeted 44% to $2.20 after news it had suspended marketing and distribution of its sole approved product, Iclusig. The drug maker said it was a temporary suspension while it "continues to negotiate updates to the U.S. prescribing information". Ariad agreed to the measure after the Food and Drug Administration (FDA) expressed concerns Iclusig, a leukemia drug, increased the chances patients would develop blood clots.

Earlier in the month, late-stage trials of Iclusig revealed higher prevalence of side effects in patients, causing shares to plummet. Sales of the drug generated $13.9 million in revenue for the second quarter 2013.

In after-markets trading, shares had managed to climb 1.4% to $2.23. In the year to date, share value has sunk 88.5%, the majority of losses suffered in October.

TheStreet Ratings team rates Ariad Pharmaceuticals (ARIA) as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate Ariad Pharmaceuticals (ARIA) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Ariad Pharmaceuticals' earnings per share declined by 19.4% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, Ariad Pharmaceuticals reported poor results of -$1.34 cents a share vs. -93 cents a share in the prior year. For the next year, the market is expecting a contraction of 20.9% in earnings (-$1.62 vs. -$1.34).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Biotechnology industry. The net income has significantly decreased by 34.4% when compared to the same quarter one year ago, falling from -$51.31 million to -$68.99 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Biotechnology industry and the overall market, Ariad Pharmaceuticals' return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to -$45.69 million or 21.53% when compared to the same quarter last year. Despite a decrease in cash flow Ariad Pharmaceuticals is still fairing well by exceeding its industry average cash flow growth rate of -64.29%.
  • Looking at the price performance of ARIA's shares over the past 12 months, there is not much good news to report: the stock is down 84.79%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • You can view the full analysis from the report here: ARIA Ratings Report

Avon Products

Avon Products lost one-fifth of its share value in Thursday trading after missing Wall Street expectations on third-quarter earnings. After the bell, shares had given up 2.1% to $17.14, adding to 21.9% in losses it sustained throughout the day.

For the period ended September, revenue of $2.26 billion was 7% lower than a year earlier, disappointing analysts surveyed by Thomson Reuters who hoped for $2.44 billion. Earnings of 14 cents a share fell short of the expected 19 cents a share.

"The third quarter was tough. Our quarterly performance was negatively impacted by macroeconomic headwinds and continued weakness in some parts of our business, particularly North America," said CEO Sheri McCory in a statement.

In North America, revenue dropped 19% and the number of direct-selling representatives decreased by 16%. In emerging markets Mexico and Russia, sales fell 5% and 2% respectively.

Separately, in an Securities and Exchange Commission filing, Avon said the SEC had proposed a potential settlement for an investigation into alleged bribery in overseas markets. Avon said the SEC's proposed terms of settlement were "of a magnitude significantly greater than our earlier offer" and such penalties were "unwarranted". Earlier in the year, the company had offered $12 million to settle the matter.

Written by Keris Alison Lahiff.

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