First-Quarter Beauty Sales Grew 17%; Active Representatives
Increased 14% NEW YORK, April 29 /PRNewswire-FirstCall/ -- Avon
Products, Inc. (NYSE:AVP) today reported that first-quarter 2008
total revenue grew 14% year over year (6% in local currency) to
$2.5 billion. Sales of Beauty products rose 17%. Active
Representatives increased 14%. Units sold were up 3% versus the
prior-year quarter. Net income in the first quarter 2008 was $185
million compared with $150 million in the year-ago quarter.
Earnings per share were $.43 versus $.34 per share in the
prior-year quarter, or 26% higher. Andrea Jung, chairman and CEO,
commented, "Again this quarter we produced solid results on the
momentum of our turnaround plan and the strength of our
well-balanced geographic portfolio. Active Representative growth
accelerated to one of the highest growth levels in many years, 14%.
This reflects our investments in the Representative Value
Proposition (RVP), such as expanding our Sales Leadership program,
increasing sales campaign frequency and improving commissions and
incentives to our Representatives. Additionally, we continued to
benefit from our strength in developing and emerging markets around
the globe to more than offset the unfavorable impact of economic
softness and service problems in North America. "With this solid
start to the year, and despite the challenges in North America, we
remain confident that we can deliver on our 2008 objectives to
achieve a full-year operating margin that approaches 2005's level
of approximately 14% and revenue growth in line with our long-term
target of mid-single-digit growth," Ms. Jung concluded. The
company's 17% growth in Beauty sales included increases in all
categories: Fragrance grew 20%, Color was up 15%, Personal Care
rose 15% and Skin Care increased 13%. First-quarter operating
profit of $296 million increased 25% from 2007's level of $238
million, while operating margin was 11.8% versus 10.9% in the
prior-year quarter. First-quarter 2008 operating profit included
costs associated with the company's restructuring program of $26
million ($.04 per share after tax), versus costs of $27 million
($.04 per share after tax) related to the company's Product Line
Simplification (PLS) and restructuring programs in the prior-year
period. Avon reiterated that it expects to achieve annualized
savings of approximately $430 million once all initiatives of its
multi-year restructuring program, launched in late 2005, are fully
implemented by 2011 - 2012. Those savings are projected to reach
$270 million in 2008 and $300 million in 2009. The company
anticipates costs to implement all restructuring initiatives from
inception to completion to be approximately $530 million.
Approximately $469 million of those costs were recorded through the
first quarter of 2008. Additionally, Avon reiterated that it
expects to achieve annualized benefits in excess of $200 million
each from its PLS program and Strategic Sourcing Initiative,
bringing total annualized savings and benefits from all three
programs to over $830 million when fully implemented. First-quarter
2008's results included $82 million in advertising expense, a 14%
increase over prior year, to support the launch of new products,
such as Anew Ultimate Age Repair Day Cream and Contouring Eye
System, Ultra Color Rich Lipstick and Supershock Mascara, as well
as Representative recruitment advertising. Additionally, 2008's
first quarter included an incremental $37 million of costs for
initiatives to improve RVP. The quarter's effective tax rate of
33.2% compared with 2007's rate of 32.4%. At quarter end, Avon's
total debt had increased $145 million from the year-end level, and
cash had decreased $71 million. Net cash used by operations was $41
million through three months of 2008, including a payment of $38
million upon settlement of treasury-lock agreements associated with
the company's recent debt issuance, compared with $160 million of
cash used by operations in the same period of 2007. This favorable
comparison was due in large part to lower post-employment-benefit
plan contributions. Looking forward, the company said that it
continues to expect full-year 2008 cash flow from operations to be
substantially higher than that of full-year 2007. First-Quarter
Regional Highlights On continued strong performances in all
markets, Latin America's first-quarter revenue rose 32% year over
year (19% in local currency). In Brazil, Avon increased revenue
nearly 60%, and the markets of Colombia and Venezuela each posted
revenue growth of over 20%. Mexico continued to progress on its
turnaround, with revenue growth of 9% and Active Representative
growth of 12% versus the prior-year period. The region's Active
Representatives grew 15%, and units sold were up 9%. Operating
profit increased 36% versus the 2007 quarter, primarily due to
higher revenue. Latin America's first-quarter operating margin was
14.0%. In the North America region, first-quarter revenue decreased
6% (7% in local currency) over that of the prior year, reflecting
the impact of a weak economy, and to a lesser degree,
service-related problems in filling Representatives' orders. Active
Representatives increased 2%. Units sold decreased 10% from the
prior-year level. Sales of Beauty products were 3% lower. Sales of
non-beauty products declined 9%, tracking with the general retail
environment. Operating profit was 17% lower than in the 2007
quarter, primarily due to the impact of lower revenues and higher
spending on RVP, among other costs. The region's operating margin
was 10.8%. While the company expects continued weakness in this
region in the second quarter, the degree of decline is expected to
be less than that experienced in the first quarter. In Central
& Eastern Europe, first-quarter revenue rose 17% (6% in local
currency), with several markets up in excess of 20%. Russia posted
12% revenue expansion. The region's Active Representatives grew
25%, benefiting from more frequent ordering opportunities. Units
sold increased 6%. Operating profit increased 20% year over year,
reflecting higher revenue. First-quarter operating margin was
22.1%. The Western Europe, Middle East & Africa region achieved
revenue growth of 17% (7% in local currency). Strong revenue growth
continued in both the Turkey and U.K. markets, with revenue up
nearly 30% and 7%, respectively. Year over year, the region's
Active Representatives rose 5% and units sold increased 2%.
Operating profit increased 41% versus the 2007 quarter due to the
increase in revenue, despite an incremental $13 million of costs to
implement previously announced restructuring. The region's
first-quarter operating margin was 6.1%. Asia-Pacific revenue
increased 9% (decreased 4% in local currency), with the Philippines
contributing revenue growth of over 30%, driven in large part by
RVP investment. Revenue in Japan increased 2% due to foreign
exchange. The region's Active Representatives rose 6% year over
year, while units sold were flat compared with the prior year.
Operating profit was up 10% year over year, primarily as a result
of higher revenue. The region's operating margin was 10.6%. Revenue
in China grew 29% (19% in local currency) and units sold were 13%
higher in the first quarter, reflecting the company's continued
success in operating in this priority growth market. Active
Representatives were up 99% year over year. Operating profit more
than tripled to $14 million year over year, reflecting a $6 million
reduction in a statutory liability and higher revenue. The region's
first-quarter operating margin was 15.5%. Total global expenses
decreased 13%, primarily due to lower costs to implement the PLS
program. Avon will conduct a conference call at 9:00 A.M. today to
discuss the quarter's results. The dial-in number for the call is
(800) 843-2086 in the U.S. or (706) 643-1815 from non-U.S.
locations (conference ID number: 42385179). The call will be
webcast live at http://www.avoninvestor.com/ and can be accessed or
downloaded from that site for a period of two weeks. Avon, the
company for women, is a leading global beauty company, with $10
billion in annual revenue. As the world's largest direct seller,
Avon markets to women in more than 100 countries through 5.4
million independent Avon Sales Representatives. Avon's product line
includes beauty products, fashion jewelry and apparel, and features
such well-recognized brand names as Avon Color, Anew, Skin-So-Soft,
Advance Techniques, Avon Naturals, and Mark. Learn more about Avon
and its products at http://www.avoncompany.com/. CAUTIONARY
STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements in this
release that are not historical facts or information are
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as "estimate,"
"project," "plan," "believe," "may," "expect," "anticipate,"
"intend," "planned," "potential," "can," "expectation" and similar
expressions, or the negative of those expressions, may identify
forward-looking statements. Such forward-looking statements are
based on management's reasonable current assumptions and
expectations. Such forward-looking statements involve risks,
uncertainties and other factors, which may cause the actual
results, levels of activity, performance or achievement of Avon to
be materially different from any future results expressed or
implied by such forward-looking statements, and there can be no
assurance that actual results will not differ materially from
management's expectations. Such factors include, among others, the
following: -- our ability to implement the key initiatives of and
realize the operating margins and projected benefits (in the
amounts and time schedules we expect) from our global business
strategy, including our multi-year restructuring initiatives,
product mix and pricing strategies, enterprise resource planning,
customer service initiatives, product line simplification program,
sales and operation planning process, strategic sourcing
initiative, outsourcing strategies, zero-overhead-growth philosophy
and cash management, tax, foreign currency hedging and risk
management strategies; -- our ability to realize the anticipated
benefits (including our projections concerning future revenue and
operating margin increases) from our multi-year restructuring
initiatives or other strategic initiatives on the time schedules or
in the amounts that we expect, and our plans to invest these
anticipated benefits ahead of future growth; -- the possibility of
business disruption in connection with our multi-year restructuring
initiatives or other strategic initiatives; -- our ability to
realize sustainable growth from our investments in our brand and
the direct selling channel; -- a general economic downturn or
recession in one or more of our geographic regions, such as North
America, and the ability of our broad-based geographic portfolio to
withstand a downturn in a particular region; -- the inventory
obsolescence and other costs associated with our product line
simplification program; -- our ability to effectively implement
initiatives to reduce inventory levels in the time period and in
the amounts we expect; -- our ability to achieve growth objectives
or maintain rates of growth, particularly in our largest markets
and developing and emerging markets; -- our ability to successfully
identify new business opportunities and identify and analyze
acquisition candidates, and our ability to negotiate and consummate
acquisitions as well as to successfully integrate or manage any
acquired business; -- the effect of political, legal and regulatory
risks, as well as foreign exchange or other restrictions, imposed
on us, our operations or our Representatives by governmental
entities; -- our ability to successfully transition our business in
China in connection with the resumption of direct selling in that
market, our ability to operate using the direct selling model
permitted in that market and our ability to retain and increase the
number of Active Representatives there over a sustained period of
time; -- the impact of substantial currency fluctuations on the
results of our foreign operations; -- general economic and business
conditions in our markets, including social, economic and political
uncertainties in Latin America, Asia Pacific, Central and Eastern
Europe and the Middle East; -- the risk of disruption in Central
and Eastern Europe associated with a change to a more rapid selling
cycle with more frequent brochures; -- information technology
systems outages, disruption in our supply chain or manufacturing
and distribution operations, or other sudden disruption in business
operations beyond our control as a result of events such as acts of
terrorism or war, natural disasters, pandemic situations and large
scale power outages; -- the risk of product or ingredient shortages
resulting from our concentration of sourcing in fewer suppliers; --
the quality, safety and efficacy of our products; -- the success of
our research and development activities; -- our ability to attract
and retain key personnel and executives; -- competitive
uncertainties in our markets, including competition from companies
in the cosmetics, fragrances, skin care and toiletries industry,
some of which are larger than we are and have greater resources; --
our ability to implement our Sales Leadership program globally, to
generate Representative activity, to increase Representative
productivity, to improve Internet-based tools for our
Representatives, and to compete with other direct selling
organizations to recruit, retain and service Representatives; --
the impact of the seasonal nature of our business, adverse effect
of rising fuel, commodity and raw material prices, changes in
market trends, purchasing habits of our consumers and changes in
consumer preferences, particularly given the global nature of our
business and the conduct of our business in primarily one channel;
-- our ability to protect our intellectual property rights; -- the
risk of an adverse outcome in our material pending and future
litigations; -- our ratings and our access to financing and ability
to secure financing at attractive rates; and -- the impact of
possible pension funding obligations, increased pension expense and
any changes in pension regulations or interpretations thereof on
our cash flow and results of operations. Additional information
identifying such factors is contained in Item 1A of our Annual
Report on Form 10-K for the year ended December 31, 2007, filed
with the U.S. Securities and Exchange Commission. We undertake no
obligation to update any such forward-looking statements. AVON
PRODUCTS, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In
millions, except per share data) Three months ended Percent March
31 Change ----------------------- --------- 2008 2007 ----------
---------- Net sales $2,477.9 $2,163.3 15% Other revenue 23.8 22.0
---------- ---------- Total revenue 2,501.7 2,185.3 14% Cost of
sales(1) 923.7 832.5 Selling, general and administrative
expenses(1) 1,281.8 1,115.0 ---------- ---------- Operating profit
296.2 237.8 25% ---------- ---------- Interest expense 26.1 26.5
Interest income (9.2) (12.3) Other expense, net 0.7 0.6 ----------
---------- Total other expenses 17.6 14.8 Income before taxes and
minority interest 278.6 223.0 25% Income taxes 92.4 72.4 ----------
---------- Income before minority interest 186.2 150.6 Minority
interest (1.5) (0.6) ---------- ---------- Net income $184.7 $150.0
23% ========== ========== Earnings per share: Basic $.43 $.34 26%
========== ========== Diluted $.43 $.34 26% ========== ==========
Average shares outstanding: Basic 426.79 440.61 Diluted 430.37
443.76 (1) For the three months ended March 31, 2008, costs to
implement restructuring initiatives impacted selling, general and
administrative expenses by $25.5. For the three months ended March
31, 2007, costs to implement restructuring initiatives impacted
cost of sales by $0.7, and selling, general and administrative
expenses by $9.0. AVON PRODUCTS, INC. CONDENSED CONSOLIDATED
BALANCE SHEETS (Unaudited) (In millions) March 31 Dec 31 2008 2007
---------- ---------- Cash, including cash equivalents $892.6
$963.4 Accounts receivable, net 779.9 840.4 Inventories 1,172.4
1,041.8 Prepaid expenses and other 732.0 669.8 ----------
---------- Total current assets 3,576.9 3,515.4 Property, plant and
equipment, net 1,333.2 1,278.2 Other assets 955.5 922.6 ----------
---------- Total assets 5,865.6 5,716.2 ========== ========== Debt
maturing within one year 562.4 929.5 Accounts payable 735.2 800.3
Other current liabilities 1,235.6 1,323.6 ---------- ----------
Total current liabilities 2,533.2 3,053.4 Long-term debt 1,680.3
1,167.9 Other non-current liabilities 781.2 783.3 Total
shareholders' equity 870.9 711.6 Total liabilities and
shareholders' equity $5,865.6 $5,716.2 ========== ========== AVON
PRODUCTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions) Three Months Ended March 31 -----------------------
2008 2007 -------- -------- Cash Flows from Operating Activities:
Net income $184.7 $150.0 Depreciation and amortization 44.0 42.7
Provision for doubtful accounts 46.4 37.1 Provision for
obsolescence 22.7 35.1 Share-based compensation 17.7 15.9 Deferred
income taxes 2.7 9.6 Other 13.3 3.9 Changes in assets and
liabilities: Accounts receivable 37.1 0.4 Inventories (118.9)
(112.4) Prepaid expenses and other (50.4) (46.6) Accounts payable
and accrued liabilities (198.5) (195.5) Income and other taxes
(26.4) 10.3 Noncurrent assets and liabilities (15.4) (110.6)
-------- -------- Net cash used by operating activities (41.0)
(160.1) Cash Flows from Investing Activities: Capital expenditures
(61.1) (33.8) Disposal of assets 2.8 8.2 Other investing activities
(0.3) (15.0) -------- -------- Net cash used by investing
activities (58.6) (40.6) Cash Flows from Financing Activities: Cash
dividends (91.5) (81.8) Total debt, net change 116.5 305.9
Repurchase of common stock (63.9) (129.7) Proceeds from exercise of
stock options, net of excess tax benefits 18.6 25.7 --------
-------- Net cash (used) provided by financing activities (20.3)
120.1 Effect of exchange rate changes on cash and cash equivalents
49.1 3.8 -------- -------- Net decrease in cash and cash
equivalents $(70.8) $(76.8) ======== ======== AVON PRODUCTS, INC.
SUPPLEMENTAL SCHEDULE (Unaudited) (In millions) THREE MONTHS ENDED
3/31/08 -------------------------- REGIONAL RESULTS
---------------- Total Revenue in Local $ in Millions Total Revenue
US$ Currency Operating Profit US$ ------------------- -----------
-------------------- %var. vs %var. vs %var. vs 1Q07 1Q07 1Q07
------------------- ----------- -------------------- Latin America
$864.3 32% 19% $120.6 36% North America 593.6 -6 -7 63.9 -17
Central & Eastern Europe(1) 421.6 17 6 93.1 20 Western Europe,
Middle East & Africa 317.0 17 7 19.3 41 Asia Pacific 217.4 9 -4
23.0 10 China 87.8 29 19 13.6 * Total from Operations 2,501.7 14 6
333.5 19 Global Expenses - - - (37.3) 13 Consolidated(1) $2,501.7
14% 6% $296.2 25% Op. Active Margin Units Reps -------- --------
-------- 2008 %var. vs %var. vs percent 1Q07 1Q07 -------- --------
-------- Latin America 14.0% 9% 15% North America 10.8 -10 2
Central & Eastern Europe(1) 22.1 6 25 Western Europe, Middle
East & Africa 6.1 2 5 Asia Pacific 10.6 0 6 China 15.5 13 99
Total from Operations 13.3 3 14 Global Expenses - - -
Consolidated(1) 11.8% 3% 14% CATEGORY SALES (US$)
-------------------- Consolidated ----------------------- %var. vs
1Q07 ----------------------- Beauty (cosmetics/fragrances/skin
care/toiletries) $1,779.8 17% Beauty Plus (fashion
jewelry/watches/apparel/accessories) 467.7 9 Beyond Beauty (home
products/gift and decorative products) 230.4 11 ------ ------ Net
Sales $2,477.9 15% Other Revenue 23.8 8 ------ ------ Total Revenue
$2,501.7 14% * Calculation not meaningful (1) Central & Eastern
Europe Active Representative growth benefited from increased
ordering opportunities as a result of a move from a four-week
campaign cycle to a three-week campaign cycle in the second half of
2007. This change had a minimal impact on Consolidated Avon.
DATASOURCE: Avon Products, Inc. CONTACT: Media: Victor Beaudet,
+1-212-282-5344, or Sharon Samuel, +1-212-282-5322, or Jennifer
Vargas, +1-212-282-5404, or Investors: Renee Johansen or Anita
Bialkowska, +1-212-282-5320, all of Avon Products, Inc. Web site:
http://www.avoncompany.com/ http://www.avoninvestor.com/ Company
News On-Call: http://www.prnewswire.com/comp/079575.html
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