Avon Reports Record First Quarter Earnings of $.62 Per Share - Up 48%
April 29 2004 - 5:29PM
PR Newswire (US)
Avon Reports Record First Quarter Earnings of $.62 Per Share - Up
48% Exceptional Topline Growth - First Quarter Sales Up 19%; Local
Currency Sales Increase 14% NEW YORK, April 29
/PRNewswire-FirstCall/ -- Avon Products, Inc. today reported
earnings for the first quarter of 2004 of $.62 per share, up 48%
from last year's first-quarter earnings of $.42 per share. The
company also raised its outlook for the full year, with 2004
earnings now projected to be in the range of $3.30 per share, up
from its previous guidance of $3.18-$3.20 per share. Sales in the
first quarter grew 19% to $1.75 billion, versus $1.47 billion in
the 2003 period, driven by double-digit volume growth and 23%
growth in sales of Beauty products. Sales in local currencies were
14% higher, accelerating from 9% growth in the fourth quarter of
2003. Total units rose 12% and active Representatives increased 9%,
with all regions contributing to the gains in each measure.
Operating profit rose 40% in the quarter and operating margin
improved 190 basis points from the prior-year quarter to 12.9%.
Gross margin expanded 150 basis points. Net income in the quarter
was $148.1 million, compared with $98.9 million in last year's
first quarter. The prior year's results included pretax expenses of
approximately $18 million, or $.05 per share after tax, to
reposition the company's beComing brand from retail to direct
selling distribution. In the quarter, net cash used by operations
was $27.6 million favorable year over year, primarily as a result
of higher net income and strong working capital management, despite
incremental year-over-year payments related to tax audit
settlements and pension plan contributions of $69 million and $19
million, respectively. Commenting on the company's first-quarter
performance, Andrea Jung, Avon's chairman and chief executive
officer said, "These exceptional results reflect the combined
leverage of our growth and Business Transformation strategies, as
well as the continuing strength of our geographic portfolio."
"Extraordinary performances in our European and Latin American
operations, and to a lesser degree favorable foreign exchange,
drove our overachievement in the quarter. European results continue
to benefit from Russia's stellar performance, and the region's
exceptional operating margin gain again reflects the ongoing
strength of our Business Transformation initiatives. Latin America
delivered excellent results on broad-based strength across the
region, and we are particularly pleased with the recovery of unit
growth in Brazil, one of our larger markets in that region. Our
U.S. business achieved 7% sales growth, as expected, and is on
track to deliver our projected full-year sales growth in the
mid-single digits. And Asia Pacific had a strong start to the year
with China again contributing substantially to the region's
growth," Ms. Jung said. Avon said that for the second quarter it
expects continued healthy double- digit growth in local-currency
sales with one-to-two points of positive foreign exchange impact as
the favorable year-over-year currency benefits experienced in
recent quarters begin to subside. Second quarter volume growth is
expected to be similar to that of the first quarter, with solid
gains projected in all regions. Operating profit is forecast to
increase in the mid-teens range, and earnings are projected to be
in the range of $.85 per share. In commenting on the full-year
outlook Ms. Jung said, "As we move solidly into 2004, we are very
confident that this year will reflect the true impact of Avon's
transformation taking hold. Given everything we know at this
moment, including the strength across all business indicators as a
result of the implementation of our strategic initiatives, I am
very pleased that we are able to raise our expectations for
full-year earnings. We now expect 2004 earnings to be in the range
of $3.30 per share, compared with 2003 earnings of $2.78 per
share," Ms. Jung said. Regional Highlights Avon said that the U.S.,
its largest market, delivered strong first- quarter sales growth of
7%. Beauty sales were 8% higher versus the year-ago period, due
primarily to a very strong performance in the skin care category
and the new Mark line of products for young women. Units increased
3% and active Representatives rose 2%. As expected, operating
profit declined 7% and operating margin was 16.4%, 270 basis points
lower than 2003's first quarter, due primarily to a planned,
large-scale non-Beauty inventory clearance event in the quarter.
U.S. operating margin remains on track to expand for the balance of
the year. Europe continued its outstanding growth, with first
quarter sales increasing 38% and local currency sales increasing
24%. Units rose 20% and Representatives were up 18% versus a year
ago. Operating profit increased 84%, and operating margin improved
480 basis points to 19.2%. Results were again driven in large part
by the continuing tremendous growth of Russia, which recorded a
sales gain of nearly 90% in the quarter (over 70% in local
currency). The U.K. contributed with first-quarter sales growth of
27% (10% in local currency) due in part to its very successful
launch of the company's blockbuster Anew Clinical Wrinkle and Line
Corrector. Results also benefited from strong growth in the
company's recently consolidated business in Turkey. On broad-based
strength across Latin America, and particularly in Venezuela,
Brazil and Argentina, first-quarter sales in the region grew 24% in
dollars and 17% in local currency. Units increased 12%, with all
major markets contributing to the gain, especially Brazil, where
units rose 14%. Active Representatives were up 8% in the region.
Operating profit increased 37%, driven primarily by leverage from
higher sales and savings from Business Transformation initiatives.
Operating margin expanded to 19.8%, up 190 basis points, on top of
a 200 basis-point gain in the prior-year quarter. The Asia Pacific
region posted first quarter sales growth of 17% (10% in local
currencies) on 15% and 5% increases in units and active
Representatives, respectively. Operating profit rose 27%, in part
due to benefits from Business Transformation initiatives in the
region. Operating margin increased to 17.1%, up 130 basis points
year over year, on top of a 350 basis-point improvement in the
first quarter of 2003. China, targeted as one of Avon's top growth
prospects, continued as the largest contributor to the region's
growth. Avon will conduct a conference call on Friday, April 30,
2004, at 10 a.m. New York time to discuss the results for the
quarter and its outlook for the rest of 2004. The conference call
will be webcast live and can be accessed at
http://www.avoninvestor.com/. Avon is the world's leading direct
seller of beauty and related products, with $6.8 billion in annual
revenues. Avon markets to women around the world through 4.4
million independent sales Representatives. Avon product lines
include such recognizable brand names as Avon Color, Anew,
Skin-So-Soft, Avon Solutions, Advance Techniques Hair Care, Avon
Naturals, Mark, and Avon Wellness. Avon also markets an extensive
line of fashion jewelry and apparel. More information about Avon
and its products can be found on the company's web site
http://www.avoncompany.com/. Cautionary 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. 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 Products, Inc. ("Avon" or the
"Company") 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: general economic and business conditions in the
Company's markets, including social, economic and political
uncertainties in Latin America, Asia and Central and Eastern
Europe; the Company's ability to implement its business strategies
and its Business Transformation initiatives, including the
integration of similar activities across markets to achieve
efficiencies; the Company's ability to achieve anticipated cost
savings and its profitability and growth targets; the impact of
substantial currency fluctuations on the results of the Company's
foreign operations and the cost of sourcing foreign products and
the success of the Company's foreign currency hedging and risk
management strategies; the Company's ability to implement its
information systems initiatives; the impact of possible pension
funding obligations and increased pension expense on the Company's
cash flow and results of operations; the effect of legal,
regulatory and tax proceedings, as well as restrictions imposed on
the Company, its operations or its Representatives by foreign
governments; the Company's ability to successfully identify new
business opportunities; the Company's access to financing; and the
Company's ability to attract and retain key executives. Additional
information identifying such factors is contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003,
filed with the SEC. The Company undertakes 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 2004
2003 Net sales $ 1,751.2 $ 1,465.7 19% Other revenue 23.4 15.7
Total revenue 1,774.6 1,481.4 20% Cost of sales (1) 662.2 574.2
Marketing, distribution and administrative expenses (1) 883.0 743.6
Operating profit 229.4 163.6 40% Interest expense 6.1 9.9 Interest
income (4.5) (2.5) Other expense, net (2) 3.2 1.8 Total other
expenses 4.8 9.2 Income before taxes and minority interest 224.6
154.4 45% Income taxes 73.9 54.0 Income before minority interest
150.7 100.4 Minority interest (2.6) (1.5) Net income $ 148.1 $ 98.9
50% Earnings per share: Basic $ .63 $ .42 50% Diluted (3) $ .62 $
.42 48% Average shares outstanding: Basic 235.78 235.09 Diluted
238.30 243.82 Notes: (1) 2003 includes expenses of $18.2 to
reposition the beComing brand, primarily severance costs, inventory
and asset writedowns and related expenses. (2) For the three months
ended March 31, 2004 and 2003, Other expense, net includes foreign
exchange losses of $2.0 and $1.1, respectively. (3) For purposes of
calculating diluted earnings per share for the three months ended
March 31, 2003 after tax interest expense of $2.7 applicable to
convertible debt was added back to net income. AVON PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions)
March 31 December 31 2004 2003 Cash, including cash equivalents $
562.0 $ 694.0 Accounts receivable, net 601.0 599.8 Inventories
694.3 653.4 Prepaid expenses and other 291.2 278.9 Total current
assets 2,148.5 2,226.1 Property, plant and equipment, net 852.6
855.6 Other assets 501.9 480.6 Total assets $ 3,503.0 $ 3,562.3
Debt maturing within one year $ 235.2 $ 244.1 Accounts payable
392.9 400.1 Other current liabilities 863.9 943.5 Total current
liabilities 1,492.0 1,587.7 Long-term debt 898.0 877.7 Other
non-current liabilities 693.5 725.6 Total shareholders' equity
419.5 371.3 Total liabilities and shareholders' equity $ 3,503.0 $
3,562.3 AVON PRODUCTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions) Three months ended March 31 2004 2003
Cash Flows from Operating Activities: Net income $ 148.1 $ 98.9
Depreciation and amortization 32.8 30.3 Provision for doubtful
accounts 35.5 30.1 Provision for obsolescence 18.8 12.1 Deferred
income taxes (5.7) 0.9 Other (0.9) 12.0 Changes in assets and
liabilities: Accounts receivable (34.8) (0.7) Inventories (63.8)
(94.6) Prepaid expenses and other (9.2) (13.9) Accounts payable and
accrued liabilities (37.3) (74.6) Income and other taxes (51.0)
(7.2) Non-current assets and liabilities (44.3) (32.7) Net cash
(used) by operating activities (11.8) (39.4) Cash Flows from
Investing Activities: Capital expenditures (30.4) (25.8) Disposal
of assets 2.6 2.2 Other investing activities 7.9 (0.5) Net cash
(used) in investing activities (19.9) (24.1) Cash Flows from
Financing Activities: Cash dividends (66.9) (51.6) Total debt, net
change (9.7) (3.7) Repurchase of common stock (59.7) (52.1)
Proceeds from exercise of stock options, net of taxes 45.4 17.2
Other financing activities (0.2) 0.5 Net cash (used) in financing
activities (91.1) (89.7) Effect of exchange rate on cash (9.2)
(0.9) Net (decrease) in cash and equivalents $ (132.0) $ (154.1)
AVON PRODUCTS, INC. - SUPPLEMENTAL SCHEDULE FIRST QUARTER 2004 -
THREE MONTHS ENDED 3/31/04 REGIONAL RESULTS Net Sales $ in Millions
in Operating Local Profit Op. Active Net Sales US$ Currency US$
Margin Units Reps % % var. % var. % var. % var. var. vs vs vs 2004
vs vs 1Q03 1Q03 1Q03 percent 1Q03 1Q03 North America $607.4 7% 7%
$96.0 16% 15.4% 4% 3% US 536.6 7 7 90.3 -7 16.4 3 2 International
1,143.8 27 18 218.2 50 19.0 15 10 Latin America 444.1 24 17 87.9 37
19.8 12 8 Europe 451.3 38 24 87.1 84 19.2 20 18 Pacific 248.4 17 10
43.2 27 17.1 15 5 Total from Operations 1,751.2 19 14 314.2 38 17.7
12 9 Global Expenses - - - (84.8) -32 - - - Consolidated $1,751.2
19% 14% $229.4 40% 12.9% 12% 9% CATEGORY SALES (US$) Consolidated
US % var. vs % var. vs 1Q03 1Q03 Beauty (cosmetics/fragrances
/toiletries) $1,211.4 23% $305.9 8% Beauty Plus (fashion jewelry/
watches/apparel/accessories) 310.1 11 137.7 8 Beyond Beauty (home
products/ gift and decorative/candles) 229.7 12 93.0 3 $1,751.2 19%
$536.6 7% DATASOURCE: Avon Products, Inc. CONTACT: Media - Victor
Beaudet, +1-212-282-5344, Investors - Renee Johansen or Rob
Foresti, +1-212-282-5320, all of Avon Products, Inc. Web site:
http://www.avon.com/ http://www.avoninvestor.com/
http://www.avoncompany.com/ Company News On-Call:
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