NEW YORK (TheStreet) -- Avon (AVP) announced today that it expects to pay a $100 million to $125 million charge due to the problems related to the rollout of an SAP-based (SAP) order management system after an exodus of sales representatives.
The beauty company started using the SAP system earlier this year after preparing for the rollout for four years. The system, according to the Wall Street Journal, was "so burdensome and disruptive" to the routine of Avon's representatives that many of them left the company.
Avon's failed rollout of the system is an example of employees demanding tools that as simple to use as their own devices. This trend is referred to as the "consumerization of IT" where company IT departments increasingly have to compete with consumers devices and services.
"Consumerization of IT" poses a threat to enterprise software companies like SAP, Oracle (ORCL), and IBM (IBM) who offer powerful tools that may not be the easiest to use. The trend favors companies like Apple (AAPL) and Google (GOOG) who produce hardware that consumers actually want to use.
TheStreet Ratings team rates SAP AG as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate SAP AG (SAP) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, compelling growth in net income, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- SAP's revenue growth has slightly outpaced the industry average of 6.4%. Since the same quarter one year prior, revenues rose by 12.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Software industry average. The net income increased by 34.3% when compared to the same quarter one year prior, rising from $816.54 million to $1,096.68 million.
- The gross profit margin for SAP AG is currently very high, coming in at 75.10%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 18.65% trails the industry average.
- SAP AG has improved earnings per share by 35.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SAP AG reported lower earnings of $3.11 versus $3.75 in the prior year. This year, the market expects an improvement in earnings ($3.37 versus $3.11).
- You can view the full analysis from the report here: SAP Ratings Report