Avon Announces 2005-2007 Financial Targets
December 07 2004 - 4:08PM
PR Newswire (US)
Avon Announces 2005-2007 Financial Targets Local-Currency Sales and
EPS Expected to Continue Growing at Least 10% Annually NEW YORK,
Dec. 7 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE:AVP)
today announced 2005-2007 financial targets, along with an update
of its near-term outlook for its business. Avon management will
review its business strategies and discuss its long-term growth
outlook at a company-sponsored investor meeting here tomorrow. The
meeting will be webcast live beginning at 9:30 A.M. Eastern time,
Wednesday, December 8, and will later be archived on Avon's
investor website, http://www.avoninvestor.com/ . The company said
that it expects earnings per share to advance at a rate of at least
10% per year in the 2005-2007 time frame, which marks the next
phase of the company's Business Transformation initiatives. Avon
also said that it expects local-currency sales to continue to grow
by at least 10% per year in 2005-2007, including the impact of
category repositioning in the U.S. The company expects further
penetration and expansion in international geographies, additional
gains in sales of Beauty products and the continuing roll-out of
the Sales Leadership career opportunity for Representatives. Avon's
long-term effective tax rate in the 2005-2007 period is projected
to be 31%, in line with expectations relating to its previously
announced tax and cash management strategies. The company
furthermore stated that annual cash flow from operations is
forecast to reach the range of $1 billion - $1.5 billion per year
in 2005-2007, up significantly from 2004's forecast of more than
$850 million. To drive further gains in new customers and market
share, Avon indicated that it will continue to fund a range of
consumer and strategic initiatives, particularly in its highest
growth markets, with a goal of over $200 million in incremental
investment in 2005-2007, in line with the level of incremental
investment made in 2002-2004. Profitability Gains Projected to
Continue Avon said that it anticipates operating margin improvement
of 250-300 basis points over the 2005-2007 period, with an overall
operating margin target of 18.5%-19% by 2007, driven by the next
phase of its Business Transformation initiatives and the resumption
of margin expansion in the U.S. in 2006. In addition, Avon said
that it expects operating margin to reach a level of 20% in 2008,
supported by implementation of an enterprise-wide resource planning
(ERP) system that will drive global integration of the company's
operations and improve the speed, flexibility and efficiency of its
global supply chain. Implementation is scheduled to start in Europe
in early 2005, with other regions planned to follow beginning in
2006. Avon anticipates that the ERP project will be substantially
completed in 2008, with incremental costs associated with the
implementation estimated to be in the range of $200 million from
2005 through 2008. Andrea Jung, Avon's chairman and chief executive
officer, commented, "The past three years have given us an
extraordinary foundation on which to continue the transformation of
Avon. While we have delivered top-line growth, earnings growth and
operating margin expansion at or near the top of our peer group, we
continue to have tremendous future prospects in all these measures.
"Over the next three years, we intend to further penetrate and
expand in rapidly growing geographies in which our direct selling
model excels. Our increased scale in the fast-growth and highly
profitable developing international markets, combined with a
repositioned U.S. business, should enable us to generate continuing
growth in sales and earnings as we evolve to the next generation of
Avon's transformation," she said. Avon U.S. Expects To Resume
Profitable Growth in 2006 Avon also plans to restore the U.S.
business to profitable growth by 2006, including the repositioning
of the toy and gift segments in the Beyond Beauty category. Plans
include discontinuing sales of toys in the second quarter 2005 and
a staged withdrawal of certain other Beyond Beauty product lines
over the next two years. The company said that these actions would
result in an approximate $145 million reduction in Beyond Beauty
sales and an associated profit reduction of $15 million - $20
million during this period. Avon said that U.S. sales in 2005 are
forecast to decline slightly and that operating profit is projected
to decline in the mid-single digits. As the category-repositioning
gains traction, Avon expects that the U.S. will resume sales and
profit growth in 2006, with sales forecast to increase in the
low-to-mid single digits and operating profit projected to grow
ahead of sales. Fourth Quarter and Full-Year 2004 Outlook Regarding
current business prospects, Avon said that it expects earnings in
the fourth quarter and full-year 2004 to be $.61 per share and
$1.77 per share, including the initial impact of the U.S. category
repositioning and lower-than-anticipated effective tax rates in the
ranges of 27% in the quarter and 28% for the full-year. The lower
tax rates result from the previously announced tax and cash
management strategies that the company began implementing in 2004.
In the fourth quarter 2003, Avon reported earnings of $.55 per
share, which included a $.04 per share favorable impact from a tax
settlement and reversal of previously recorded restructuring
charges. The company also said that it expects full-year cash flow
from operations to reach at least $850 million, well ahead of its
2004 target of $800 million. Avon said that dollar-denominated and
local-currency sales in the fourth quarter are forecast to increase
in the ranges of 10% and 7%, respectively, with sales of Beauty
products projected to advance ahead of overall dollar sales at an
approximate 14% rate. Units and active Representatives are each
expected to be up 10% in the quarter. The company also said that
fourth-quarter operating profit should grow 6%, even after an
incremental $30 million in consumer and strategic investments, the
initial impact of approximately $4 million in expenses relating to
the repositioning of the Beyond Beauty category in the U.S., and $4
million from reversal of special charges in the prior-year period.
In the U.S., sales in the fourth quarter are expected to be down
approximately 5% versus prior-year due largely to the severity of
the previously announced decline in the Beyond Beauty category.
Sales of Beauty products and growth in active Representatives both
are forecast to be down slightly versus last year's fourth quarter
due to the weak environment for lower-income consumers. U.S.
operating profit in the quarter is projected to be in the range of
$100 million due to the lower sales, continuing pressure from
freight and material costs, and the aforementioned repositioning
impact. U.S. operating profit in the year-ago quarter was $133
million. Avon expects all international regions to finish the year
with strong dollar-denominated performances in the quarter. In
Europe, sales and operating profit are tracking up by approximately
25% and 35%, respectively. Latin America is projected to grow sales
and operating profit in the high- single digits. In Asia, sales and
operating profit are projected to be up by approximately 10% and
20%, respectively. 2005 Outlook In 2005, Avon said that it expects
to deliver another year of continued standout growth, inclusive of
the U.S. repositioning impact and with results in line with the
newly announced 2005-2007 targets. Local-currency sales in 2005 are
projected to grow 10% year-over-year, driven by double-digit gains
in units and active Representatives, with Beauty sales growing
ahead of total sales. Operating margin is forecast to expand in the
range of 50-80 basis points, and earnings per share are expected to
be in the range of $1.95-$2.00. The company also noted that its
effective tax rate in 2005 is expected to revert to 31% based upon
full implementation of the previously announced tax and cash
management strategies. 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 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. 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 Pacific and Central and Eastern Europe; the Company's
ability to implement its business, cash management and tax
strategies and its Business Transformation initiatives; the
Company's ability to achieve anticipated cost savings and its
profitability and growth targets, particularly in its largest
markets; the Company's ability to implement appropriate product mix
and pricing strategies; the Company's ability to replace lost sales
attributable to the repositioning of the U.S. Beyond Beauty
business; 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 Sales Leadership program globally and to
increase Representative productivity; the Company's ability to
implement its enterprise resource planning project; 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. DATASOURCE: Avon
Products, Inc. CONTACT: MEDIA - Victor Beaudet, +1-212-282-5344, or
Sharon Samuel, +1-212-282-5322, 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/ Company News
On-Call: http://www.prnewswire.com/comp/079575.html
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