Avon Reports Record Fourth Quarter EPS of $.61, Up 11%, Sales
Increase 10% and Beauty Sales Climb 16% NEW YORK, Feb. 1
/PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE:AVP) today
announced fourth-quarter 2004 EPS of $.61 per share, as expected,
up 11% from $.55 per share in the fourth quarter of 2003. Avon said
that dollar-denominated and local-currency sales in the fourth
quarter increased 10% and 7%, respectively, with sales of Beauty
products advancing a healthy 16%, well ahead of overall
dollar-sales growth. Units and active Representatives both rose 10%
in the quarter. Fourth-quarter operating profit grew 6%, as
expected. Operating margin contracted 70 basis points, to 17.8%,
after an incremental $37 million in consumer and strategic
investments. Net income in the quarter rose 11% to $288.8 million,
compared with $261.3 million in the fourth quarter of 2003. The
quarter's results included $.03 per share negative impact from a
non-cash charge for the writedown of securities available to fund
select benefit plan obligations. This was offset by a $.02 benefit
from a lower-than-anticipated tax rate in the quarter of 25% and a
$.01 favorable impact from the reversal of previously recorded
restructuring charges. FULL-YEAR RESULTS For full-year 2004, Avon
reported that earnings per share increased 27% to $1.77 per share,
versus $1.39 per share in the prior year. Sales rose 13% in 2004,
or 10% in local currencies, to a record $7.66 billion, versus $6.77
billion in 2003. Sales of Beauty products grew 17%, with increases
in all categories: skin care up 20%; fragrance up 13%; color
cosmetics up 14%; and personal care up 24%. Active Representatives
rose 11% to 4.9 million and units increased 13%. Net income in 2004
was $846.1 million, up 27% from $664.8 million in 2003. Cash flow
from operations reached a record $883 million for the year, well
surpassing the company's upwardly revised 2004 target of $850
million. In recognition of the very healthy levels of cash flow
that the company consistently generates, Avon today is announcing
an 18% increase in its quarterly dividend and plans for a new $1
billion, five-year share repurchase authorization. The dividend
increase comes on top of a 33% increase in 2004, for a cumulative
57% increase in the dividend over the two-year period. In
commenting on 2004 results, Andrea Jung, Avon's chairman and chief
executive officer, said, "We are extremely proud to have achieved
double-digit topline expansion in local currency for the fifth
consecutive year and earnings per share growth of 20% or more for
the third consecutive year. Our 17% increase in Beauty sales over
last year's strong 15% increase, coupled with continued
double-digit gains in active Representatives, reflects the success
of our strategies to build the Avon brand and drive growth in our
direct selling channel. "The consistent strength of our
consolidated geographic portfolio, together with the tremendous
level of cash that our business now generates -- more than double
the level of four years ago -- should provide a very solid
foundation for unleashing further growth as we continue to move
forward with Avon's transformation," Ms. Jung concluded.
FOURTH-QUARTER REGIONAL HIGHLIGHTS In the U.S., sales in the fourth
quarter decreased 5% versus prior year, as expected, in large part
due to a 16% decline in the Beyond Beauty category, primarily in
toys and gifts, which are being repositioned in 2005. As
anticipated, sales of Beauty products were 1% lower versus the
year-ago quarter, active Representatives were 2% lower and units
declined 5%. U.S. operating profit in the quarter was $101 million,
versus $133 million in the year-ago quarter, due to the lower sales
level, as well as $5.4 million of costs associated with the
previously announced Beyond Beauty category repositioning and
continued pressure on freight and material costs. U.S. operating
margin in the quarter was 15.3% versus 19.1% in the 2003 quarter.
In Europe, sales and operating profit rose 26% and 36%,
respectively, based on strong operating performance. Excluding the
impact of currency translation, sales increased 16%. The number of
active Representatives grew 17%, and units rose 20% on strong
demand for a new personal care line, Senses, which launched in the
third quarter of 2004. Operating margin in the region expanded 210
basis points to a record 27.1% including an expected gain of $6.5
million from the sale of a property in Western Europe. Central and
Eastern Europe drove the region's operating performance, with sales
and operating profit up in the range of 35% and 30%, respectively,
led by Russia, where sales exceeded $400 million for the full-year
2004. The markets of Central and Eastern Europe together
contributed in excess of $1 billion in annual revenue, one year
ahead of schedule. In Latin America, sales and operating profit
increased 12% and 11%, respectively, primarily driven by strong
performances in Brazil and Venezuela. Sales in local currencies
were up 14%, active Representatives increased 11% and units rose
9%. The region's operating margin was 25.8% versus 26.1% in the
prior-year quarter, as an expected margin decline in Mexico was
largely offset by margin improvement in Venezuela. In Asia Pacific,
sales and operating profit both rose 9%. Sales in local currencies
were up 7%, units increased 17% and active Representatives grew
10%. The region's operating margin was 18.6% in the quarter, flat
with the year-ago period, including greater than planned margin
investment to drive further penetration in China. China contributed
significantly to the region's growth in the quarter, with sales
climbing almost 50% to reach nearly $225 million for the full-year
2004, driving the region's revenue over $1 billion for the first
time. 2005 Outlook As announced in December, Avon expects to
deliver another year of standout growth in 2005, reflecting ongoing
strength in its international operations. Local-currency total
revenues are projected to grow 10% year over year, driven by
double-digit gains in units and active Representatives, with Beauty
growth outpacing overall revenue growth. Operating margin is
forecast to expand 50- 80 basis points, and earnings per share are
expected to be in the range of $1.95-$2.00, with a 2005 effective
tax rate of approximately 31%. Additionally, cash flow from
operations is projected to reach a record $1 billion this year. For
the first quarter, Avon said it expects local-currency revenue
growth in line with fourth quarter's growth. Dollar-based revenue
growth should again outpace local-currency growth, with a slightly
less favorable foreign exchange impact than in the fourth quarter.
Operating profit is projected to grow at least in line with dollar
revenue growth. The company anticipates earnings to be in the range
of $.35 per share, versus $.31 per share in the first quarter 2004.
As the U.S. takes the previously announced steps to reposition its
business, U.S. first-quarter revenue is anticipated to decrease
mid-single digits, and operating profit is projected to be down
mid-teens from prior year. International regions are expected to
deliver strong first-quarter performances. Europe's revenue and
operating profit are anticipated to be up in the mid-20% and
low-30% ranges, respectively, against very strong 2004 comparisons.
Latin America is projected to grow revenue in the mid-to-high
single digits with operating profit growing ahead of revenue. The
Asia Pacific region is expected to post revenue growth of
approximately 10% with mid-teens operating-profit growth. The
company reiterates its full-year 2005 U.S. forecast for revenue to
decline slightly and operating profit to decrease in the mid-single
digits. As the category repositioning gains traction in the U.S.
business, Avon remains confident that the U.S. will resume revenue
and operating-profit growth in 2006, with revenues expected to
increase in the low-to-mid single digits and operating profit
projected to grow ahead of revenues. For 2005, International
operations are projected to post another year of growth on growth,
with revenue increasing mid-teens and operating profit expected to
grow over 20%, on particular strength in the company's leading
growth markets of Russia, China, Turkey and Brazil. Europe is
expected to again be the company's growth leader-with revenue up in
the low-20% range and operating profit growth in the mid-20% range.
Latin America anticipates revenue growth in the range of 10% and
operating profit growth in the mid- teens. In 2005 Asia Pacific's
revenue growth is projected to be in the low teens, with operating
profit in the range of 25%. Avon will conduct a conference call
today at 9 a.m. New York time to discuss the results for the
quarter and full-year and its outlook for 2005. 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 $7.7 billion in annual
revenues. Avon markets to women around the world through 4.9
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 impact of stock option expense pursuant to FAS
123R; 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
(In millions, except per share data) Three months ended Percent
Year ended Percent December 31 Change December 31 Change 2004 2003
2004 2003 Net sales (1) $2,285.7 $2,076.9 10% $7,656.2 $6,773.7 13%
Other revenue 24.8 23.3 91.6 71.4 Total revenue (1) 2,310.5 2,100.2
10% 7,747.8 6,845.1 13% Cost of sales (1) 906.4 811.5 2,911.7
2,611.8 Marketing, distribution and administrative expenses (1)
996.0 904.2 3,610.3 3,194.4 Special charge (2) (3.2) (3.9) (3.2)
(3.9) Operating profit 411.3 388.4 6% 1,229.0 1,042.8 18% Interest
expense 9.7 6.3 33.8 33.3 Interest income (6.7) (4.3) (20.6) (12.6)
Other expense, net (3) 18.9 6.0 28.3 28.6 Total other expenses 21.9
8.0 41.5 49.3 Income before taxes and minority interest 389.4 380.4
2% 1,187.5 993.5 20% Income taxes (4) 98.1 115.3 330.6 318.9 Income
before minority interest 291.3 265.1 856.9 674.6 Minority interest
(2.5) (3.8) (10.8) (9.8) Net income $288.8 $261.3 11% $846.1 $664.8
27% Earnings per share: (5) Basic $.61 $.55 11% $1.79 $1.41 27%
Diluted (6) $.61 $.55 11% $1.77 $1.39 27% Average shares
outstanding: Basic 472.26 471.99 472.35 471.08 Diluted 477.25
477.28 477.96 483.13 Notes: (1) For the three months and year ended
December 31, 2003, and the year ended December 31, 2004, certain
Brazilian taxes were reclassified from operating expenses to a
reduction of sales and cost of sales. These reclassifications did
not affect operating profit. (2) For the three months and year
ended December 31, 2004, the Company recorded a benefit of $3.2
pretax ($2.6 after-tax; $0.01 diluted EPS) from an adjustment to
the Special charge recorded in the fourth quarter of 2001 and third
quarter of 2002. For the three months and year ended December 31,
2003, the Company recorded a benefit of $3.9 pretax ($2.7
after-tax; $0.01 diluted EPS) from an adjustment to the Special
charge recorded in the fourth quarter of 2001 and third quarter of
2002. (3) For the three months ended December 31, Other expense,
net includes net foreign exchange losses of $3.6 in 2004 and 2003.
For the year ended December 31, Other expense, net includes net
foreign exchange losses of $9.5 and $15.9 in 2004 and 2003,
respectively. The three months and year ended December 31, 2004
also includes $13.7 of expense for a write down of investments in
equity securities. The year ended December 31, 2003 also includes
$6.4 of expense for the write-off of deferred debt issue costs due
to the redemption of convertible notes. (4) For the three months
and year ended December 31, 2004, earnings per share were impacted
by a reduction in tax expense of $22.6 and $59.1, respectively, due
to international cash management and tax strategies and foreign tax
credits benefited. For the three months and year ended December 31,
2003, earnings per share were also impacted by a reduction in tax
expense of $14.0 and $24.8, respectively, due to favorable audit
settlements and an IRS interest refund. (5) 2003 quarter and
year-to-date Earnings per share were restated to reflect the
two-for-one stock split that took place in May 2004. (6) For
purposes of calculating diluted earnings per share for the year
ended December 31, 2003, after tax interest expense of $5.7,
applicable to convertible debt was added back to net income. AVON
PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions) December 31 December 31 2004 2003 Cash and cash
equivalents $769.6 $694.0 Accounts receivable 599.1 553.2
Inventories 740.5 653.4 Prepaid expenses and other 397.2 325.5
Total current assets 2,506.4 2,226.1 Property, plant and equipment,
net 1,014.8 855.6 Other assets 626.9 499.9 Total assets $4,148.1
$3,581.6 Debt maturing within one year $51.7 $244.1 Accounts
payable 490.1 400.1 Other current liabilities 983.7 962.8 Total
current liabilities 1,525.5 1,607.0 Long-term debt 866.3 877.7
Other non-current liabilities 806.1 725.6 Total shareholders'
equity 950.2 371.3 Total liabilities and shareholders' equity
$4,148.1 $3,581.6 AVON PRODUCTS, INC. CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited) (In millions) Twelve Months Ended December
31 2004 2003 Cash Flows from Operating Activities: Net income
$846.1 $664.8 Depreciation and amortization 133.7 123.5 Provision
for doubtful accounts 140.0 124.8 Provision for obsolescence 65.5
55.6 Deferred income taxes (55.0) 22.7 Other 18.0 42.3 Changes in
assets and liabilities: Accounts receivable (160.4) (142.6)
Inventories (115.3) (66.4) Prepaid expenses and other (60.0) (23.9)
Accounts payable and accrued liabilities 100.1 (48.6) Income and
other taxes 10.3 5.1 Noncurrent assets and liabilities (40.4)
(12.0) Net cash provided by operating activities 882.6 745.3 Cash
Flows from Investing Activities: Capital expenditures (250.1)
(162.6) Disposal of assets 19.6 14.1 Other investing activities
(48.9) (29.9) Net cash used by investing activities (279.4) (178.4)
Cash Flows from Financing Activities: Cash dividends (269.7)
(201.4) Total debt, net change (195.8) (181.1) Repurchase of common
stock (224.2) (214.3) Proceeds from exercise of stock options, net
of taxes 122.3 100.6 Other financing activities 0.4 0.7 Net cash
used by financing activities (567.0) (495.5) Effect of exchange
rate changes on cash and equivalents 39.4 15.8 Net increase in cash
and equivalents $75.6 $87.2 AVON PRODUCTS, INC. - SUPPLEMENTAL
SCHEDULE FOURTH QUARTER 2004 - THREE MONTHS ENDED 12/31/04 REGIONAL
RESULTS Net Sales in Local $ in Millions Net Sales US$ Currency
Operating Profit US$ % var. vs % var. vs % var. vs 4Q03 4Q03 4Q03
North America $756.8 -2% -3% $112.5 -20% US 642.1 -5 -5 100.6 -24
International(1) 1,528.9 17 13 383.4 22 Latin America (1) 536.1 12
14 138.3 11 Europe 694.7 26 16 188.9 36 Asia Pacific (2) 298.1 9 7
56.2 9 Total from Operations (1) (2) 2,285.7 10 7 495.9 9 Global
Expenses (3) -- -- -- (84.6) -25 Consolidated (1) (2) (3) $2,285.7
10% 7% $411.3 6% $ in Millions Op. Margin Units Active Reps 2004
percent % var. vs % var. vs 4Q03 4Q03 North America 14.5% -2% -2%
US 15.3 -5 -2 International (1) 25.0 14 13 Latin America (1) 25.8 9
11 Europe 27.1 20 17 Asia Pacific (2) 18.6 17 10 Total from
Operations (1) (2) 21.5 10 10 Global Expenses (3) -- -- --
Consolidated (1) (2) (3) 17.8% 10% 10% CATEGORY SALES (US$)
Consolidated US % var. vs % var. vs 4Q03 4Q03 Beauty
(cosmetics/fragrances/ toiletries) $1,513.6 16% $312.4 -1% Beauty
Plus (fashion jewelry/ watches/apparel/ accessories) 396.4 7 169.9
-1 Beyond Beauty (home products/ gift and decorative /candles)
375.7 -5 159.8 -16 $2,285.7 10% $642.1 -5% FOURTH QUARTER 2004 -
YEAR ENDED 12/31/04 REGIONAL RESULTS Net Sales in Local $ in
Millions Net Sales US$ Currency Operating Profit US$ % var. vs %
var. vs % var. vs FY03 FY03 FY03 North America $2,568.1 2% 1%
$411.4 -3% US 2,227.1 0 0 377.2 -10 International (1) 5,088.1 20 16
1,143.5 30 Latin America (1) 1,932.8 13 14 479.1 18 Europe 2,095.0
30 20 471.7 51 Asia Pacific (2) 1,060.3 15 11 192.7 23 Total from
Operations (1) (2) 7,656.2 13 10 1,554.9 19 Global Expenses (3) --
-- -- (325.9) -26 Consolidated (1) (2) (3) $7,656.2 13% 10%
$1,229.0 18% $ in Millions Op. Margin Units Active Reps 2004
percent % var. vs % var. vs FY03 FY03 North America 15.6% 3% 1% US
16.5 2 1 International (1) 22.4 16 13 Latin America (1) 24.8 11 11
Europe 22.4 22 16 Asia Pacific (2) 17.9 21 13 Total from Operations
(1) (2) 20.1 13 11 Global Expenses (3) -- -- -- Consolidated (1)
(2) (3) 15.9% 13% 11% CATEGORY SALES (US$) Consolidated US % var.
vs % var. vs FY03 FY03 Beauty (cosmetics/fragrances/ toiletries)
$5,245.4 17% $1,222.6 3% Beauty Plus (fashion jewelry/
watches/apparel/ accessories) 1,359.6 8 583.8 2 Beyond Beauty (home
products/ gift and decorative /candles) 1,051.2 0 420.7 -9 $7,656.2
13% $2,227.1 0% (1) For the three months and year ended December
31, 2003, and the year ended December 31, 2004, certain Brazilian
taxes were reclassified from operating expenses to a reduction of
sales and cost of sales. These reclassifications did not affect
operating profit. (2) Growth in Active Representatives was
positively impacted by an increase in the number of sales campaigns
in the Philippines in the second quarter of 2004, resulting in
additional opportunities to order. This change positively impacted
Active Representative growth in Asia Pacific for the three months
and year ended December 31, 2004 by 7 points and 5 points,
respectively. This change positively impacted Active Representative
growth for Consolidated Avon for the three months and year ended
December 31, 2004 by 1 point in each period. (3) For the three
months and year ended December 31, 2004, the Company recorded a
benefit of $3.2 pretax ($2.6 after-tax; $0.01 diluted EPS) from an
adjustment to the Special charge recorded in the fourth quarter of
2001 and third quarter of 2002. For the three months and year ended
December 31, 2003, the Company recorded a benefit of $3.9 pretax
($2.7 after-tax; $0.01 diluted EPS) from an adjustment to the
Special charge recorded in the fourth quarter of 2001 and third
quarter of 2002. DATASOURCE: Avon Products, Inc. CONTACT: Media,
Victor Beaudet, +1-212-282-5344, or Sharon Samuel, +1-212-282-5322,
or Investors, Renee Johansen and Rob Foresti, both at
+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:
http://www.prnewswire.com/comp/079575.html
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