Second-Quarter Operating Margin at 13.7%; Company Reiterates
Full-Year 2008 Operating Margin Guidance NEW YORK, July 30
/PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE:AVP) today
reported that second-quarter 2008 total revenue grew 17% year over
year (9% in local currency) to $2.7 billion. Sales of Beauty
products rose 19%. Active Representatives increased 7%, and units
sold were up 5% versus the prior-year quarter. All six operating
regions contributed to the growth in each of these measures.
Operating profit doubled, to $374 million from $187 million, and
the company's operating margin rose to 13.7% from 8.0% in the
year-ago quarter. Net income in the second quarter 2008 was $236
million compared with $113 million in the year-ago quarter.
Earnings per share were $.55 versus $.26 per share in the
prior-year quarter, or 112% higher. Andrea Jung, chairman and CEO,
commented, "The second quarter performance is the best that we have
delivered since launching our turnaround in late 2005. Both
top-line and bottom-line growth rates are among the strongest of
the last two years. We achieved these results on the strength of
our well-balanced geographic portfolio and the momentum of our
turnaround plan. "Our results this quarter contributed strongly to
a six-month operating margin of 12.8%. With this solid year-to-date
performance and the timing of our expected 2008 savings and
benefits from strategic initiatives weighted to the second half of
the year, we are well on our way to achieving our 2008 operating
margin target. That target is to deliver a full-year 2008 operating
margin that approaches 2005's level of approximately 14%. "Like our
peers, we are experiencing input cost pressures in the current
business environment. The savings and benefits from our strategic
initiatives, our ongoing ability to capture strategic price
increases, and the leverage from our revenue growth are helping to
offset these cost pressures," Ms. Jung concluded. The company's 19%
growth in Beauty sales included increases in all categories: Color
was up 26%, Fragrance grew 17%, Skin Care increased 15% and
Personal Care rose 17%. Beauty sales benefited in part from a
year-over-year 10% increase in advertising expense, to $103
million. Advertising supported the launch of new products, such as
Pro-to-Go Lipstick and Anew Ultimate Eye Contouring System as well
as Representative recruitment advertising in priority markets.
Additionally, 2008's second quarter included an incremental $16
million of costs for initiatives to improve the Representative
Value Proposition (RVP). Second-quarter 2008 operating profit
included costs associated with the company's restructuring program
of $13 million ($.02 per share after tax), versus costs of $82
million ($.14 per share after tax) related to the company's Product
Line Simplification (PLS) ($61 million) and restructuring programs
($21 million) 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 expected 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 $482 million of those
costs were recorded through the second quarter of 2008.
Additionally, Avon reiterated that it expects to achieve, beginning
in 2010, in excess of $200 million annual benefits each from its
PLS program and Strategic Sourcing Initiative for a total in excess
of $400 million from these two programs and over $830 million
annually from all initiatives when fully implemented. The quarter's
effective tax rate of 31.2% compared with 2007's rate of 32.3%. At
quarter end, Avon's total debt had increased $167 million from the
year-end level, and cash had decreased $3 million. Net cash
provided by operating activities was $172 million through six
months of 2008 compared with $1 million of cash used by operating
activities in the same period of 2007. This favorable comparison
was due in large part to lower contributions to retirement-related
plans and higher net income. Looking forward, the company said that
it continues to expect full-year 2008 cash flow from operating
activities to be substantially higher than that of full-year 2007.
Second-Quarter Regional Highlights On continued strong performances
in all markets, Latin America's second-quarter revenue rose 27%
year over year (15% in local currency) to over $1 billion in the
quarter for the first time. Avon said that revenue increased over
30% in Brazil, nearly 50% in Venezuela, over 20% in Colombia and
12% in Mexico. The region's Active Representatives increased 4%,
and units sold were up 3%. Operating profit grew 65% versus the
2007 quarter, primarily due to higher revenue. Latin America's
second-quarter operating margin was 18.6%. The North America region
reported a second-quarter revenue increase of 2% (1% in local
currency) over the prior year. Both Active Representatives and
units sold increased 5% from prior-year levels. Sales of Beauty
products were 7% higher, with increases in all categories. Sales of
Non-Beauty products declined 4%. Operating profit was 81% above
that of the 2007 quarter, primarily due to lower obsolescence and
overhead expenses. The region's operating margin was 11.9%. In
Central & Eastern Europe, second-quarter revenue rose 30% (15%
in local currency). Revenue grew in excess of 30% in Russia as well
as in other key markets in the region. The region's Active
Representatives were up 20%, benefiting again from additional
ordering opportunities through more frequent brochure distribution
versus the year-ago period. Units sold increased 13%. Operating
profit grew 100% year over year, reflecting lower obsolescence
expense and higher revenue somewhat offset by higher RVP and
advertising expense. Second-quarter operating margin was 21.2%. The
Western Europe, Middle East & Africa region achieved revenue
growth of 14% (8% in local currency). Strong revenue growth
continued in both the Turkey and U.K. markets, with revenue up
nearly 20% and 6%, respectively. Year over year, the region's
Active Representatives rose 4% and units sold increased 3%.
Operating profit was 176% higher versus the 2007 quarter due to
higher revenue and lower obsolescence and overhead expense. The
region's second-quarter operating margin was 11.8%. Asia-Pacific
revenue increased 12% (1% in local currency), with the Philippines
contributing revenue growth of over 20%. The region's Active
Representatives rose 4% year over year, while units sold increased
2% compared with the prior year. Operating profit was up 70% year
over year, primarily as a result of lower obsolescence and overhead
expenses. The region's operating margin was 12.1%. Revenue in China
grew 20% (8% in local currency), Active Representatives were up 36%
and units sold were 16% higher in the second quarter. The region
reported an operating loss of $8 million versus a loss of $2
million in the 2007 period, primarily due to substantially higher
advertising spending and somewhat lower gross margin resulting from
unfavorable product mix. The region's second-quarter operating
margin was (10.2)%. 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: 52518044). 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 over
$10 billion in annual revenue. As the world's largest direct
seller, Avon markets to women in more than 100 countries through
over 5.5 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," "forecast," "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, cash flow from operations 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 energy, 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 continue to help offset higher commodity costs
through the savings and benefits from our strategic initiatives,
strategic price increases and holding cost growth below our revenue
growth; -- 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 Six
months ended Percent June 30 Change June 30 Change
------------------- ------- ------------------ ------- 2008 2007
2008 2007 -------- -------- -------- -------- Net sales $2,711.0
$2,306.4 18% $5,188.9 $4,469.7 16% Other revenue 25.1 22.4 48.9
44.4 ------- ------- -------- -------- Total revenue 2,736.1
2,328.8 17% 5,237.8 4,514.1 16% Cost of sales (1) 993.4 921.1
1,917.1 1,753.6 Selling, general and administrative expenses (1)
1,368.8 1,220.8 2,650.6 2,335.8 ------- ------- -------- --------
Operating profit 373.9 186.9 100% 670.1 424.7 58% ------- -------
-------- -------- Interest expense 26.1 28.1 52.2 54.6 Interest
income (8.6) (10.3) (17.8) (22.6) Other expense, net 12.0 1.2 12.7
1.8 ------- ------- -------- -------- Total other expenses 29.5
19.0 47.1 33.8 Income before taxes and minority interest 344.4
167.9 105% 623.0 390.9 59% Income taxes 107.4 54.2 199.8 126.6
------- ------- -------- -------- Income before minority interest
237.0 113.7 423.2 264.3 Minority interest (1.4) (1.0) (2.9) (1.6)
------- ------- -------- -------- Net income $235.6 $112.7 109%
$420.3 $262.7 60% ======= ======= ======== ======== Earnings per
share: Basic $.55 $.26 112% $.99 $.60 65% ======= ======= ========
======== Diluted $.55 $.26 112% $.98 $.60 63% ======= =======
======== ======== Average shares outstanding: Basic 426.57 434.85
426.68 437.71 Diluted 430.30 438.45 430.34 441.09 (1) For the three
and six months ended June 30, 2008, costs to implement
restructuring initiatives impacted cost of sales by $0.3, and
selling, general and administrative expenses by $13.0 and $38.5,
respectively. For the three and six months ended June 30, 2007,
costs to implement restructuring initiatives impacted cost of sales
by $0.0 and $0.7, respectively, and selling, general and
administrative expenses by $20.5 and $29.5, respectively. AVON
PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions) June 30 Dec 31 2008 2007 ---------- ---------- Cash,
including cash equivalents $960.3 $963.4 Accounts receivable, net
787.4 840.4 Inventories 1,202.7 1,041.8 Prepaid expenses and other
789.2 669.8 ---------- ---------- Total current assets 3,739.6
3,515.4 Property, plant and equipment, net 1,377.3 1,278.2 Other
assets 958.4 922.6 ---------- ---------- Total assets 6,075.3
5,716.2 ========== ========== Debt maturing within one year 592.7
929.5 Accounts payable 740.8 800.3 Other current liabilities
1,235.5 1,323.6 ---------- ---------- Total current liabilities
2,569.0 3,053.4 Long-term debt 1,671.5 1,167.9 Other non-current
liabilities 783.8 783.3 Total shareholders' equity 1,051.0 711.6
---------- ---------- Total liabilities and shareholders' equity
$6,075.3 $5,716.2 ========== ========== AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Six
Months Ended June 30 ------------------------ 2008 2007 --------
-------- Cash Flows from Operating Activities: Net income $420.3
$262.7 Depreciation and amortization 92.7 87.7 Provision for
doubtful accounts 95.3 75.0 Provision for obsolescence 28.9 126.5
Share-based compensation 31.1 34.1 Deferred income taxes 3.7 9.2
Other 20.2 16.0 Changes in assets and liabilities: Accounts
receivable (7.5) (28.9) Inventories (145.2) (226.8) Prepaid
expenses and other (101.5) (40.3) Accounts payable and accrued
liabilities (231.9) (152.1) Income and other taxes (8.9) (49.5)
Noncurrent assets and liabilities (24.8) (114.5) -------- --------
Net cash provided (used) by operating activities 172.4 (0.9) Cash
Flows from Investing Activities: Capital expenditures (136.0)
(83.7) Disposal of assets 5.1 7.2 Other investing activities (0.2)
(18.0) -------- -------- Net cash used by investing activities
(131.1) (94.5) Cash Flows from Financing Activities: Cash dividends
(177.3) (165.1) Total debt, net change 155.8 292.7 Repurchase of
common stock (120.9) (410.1) Proceeds from exercise of stock
options, net of excess tax benefits 33.6 57.9 -------- -------- Net
cash used by financing activities (108.8) (224.6) Effect of
exchange rate changes on cash and cash equivalents 64.4 24.5
-------- -------- Net decrease in cash and cash equivalents $(3.1)
$(295.5) ======== ======== AVON PRODUCTS, INC. SUPPLEMENTAL
SCHEDULE (Unaudited) (In millions) THREE MONTHS ENDED 6/30/08
========================== REGIONAL RESULTS ================ Total
Revenue Total in Local Operating Op. Active Revenue US$ Currency
Profit US$ Margin Units Reps ----------------- -------- -----------
------ ----- ----- $ in Millions %var. %var. %var. %var. %var. vs
vs vs 2008 vs vs 2Q07 2Q07 2Q07 percent 2Q07 2Q07 ----------- -----
-------- ------ ---- ------- ---- ----- Latin America $1,010.7 27%
15% $187.5 65% 18.6% 3% 4% North America (1) 633.3 2 1 75.2 81 11.9
5 5 Central & Eastern Europe (2) 432.6 30 15 91.6 100 21.2 13
20 Western Europe, Middle East & Africa 354.6 14 8 41.9 176
11.8 3 4 Asia Pacific 227.2 12 1 27.5 70 12.1 2 4 China 77.7 20 8
(7.9) * -10.2 16 36 Total from Operations 2,736.1 17 9 415.8 80
15.2 5 7 Global Expenses - - - (41.9) 4 - - - Consolidated (1)(2)
$2,736.1 17% 9% $373.9 100% 13.7% 5% 7% CATEGORY SALES (US$)
==================== Consolidated ------------------------- % var.
vs 2Q07 ------------------------- Beauty (cosmetics/fragrances/skin
care/toiletries) $1,960.9 19% Beauty Plus (fashion
jewelry/watches/apparel/accessories) 522.8 16 Beyond Beauty (home
products/gift and decorative products) 227.3 9 -------- --------
Net Sales $2,711.0 18% Other Revenue 25.1 12 -------- --------
Total Revenue $2,736.1 17% SIX MONTHS ENDED 6/30/08
======================== REGIONAL RESULTS ================ Total
Revenue Total in Local Operating Op. Active Revenue US$ Currency
Profit US$ Margin Units Reps ----------------- -------- ----------
------ ----- ----- $ in Millions %var. %var. %var. %var. %var. vs
vs vs 2008 vs vs 1H07 1H07 1H07 percent 1H07 1H07 ----------- -----
-------- ------ ---- ------- ---- ----- Latin America $1,875.0 29%
17% $308.1 52% 16.4% 6% 9% North America (1) 1,226.9 -2 -3 139.1 17
11.3 -3 3 Central & Eastern Europe (2) 854.2 23 10 184.7 50
21.6 9 23 Western Europe, Middle East & Africa 671.6 15 8 61.2
112 9.1 3 3 Asia Pacific 444.6 10 -1 50.5 36 11.4 1 4 China 165.5
24 14 5.7 * 3.4 14 65 Total from Operations 5,237.8 16 7 749.3 47
14.3 4 10 Global Expenses - - - (79.2) 9 - - - Consolidated (1)(2)
$5,237.8 16% 7% $670.1 58% 12.8% 4% 10% CATEGORY SALES (US$)
==================== Consolidated -------------------------- % var.
vs 1H07 -------------------------- Beauty
(cosmetics/fragrances/skin care/toiletries) $3,740.7 18% Beauty
Plus (fashion jewelry/watches/apparel/accessories) 990.5 13 Beyond
Beauty (home products/gift and decorative products) 457.7 10
-------- --------- Net Sales $5,188.9 16% Other Revenue 48.9 10
-------- --------- Total Revenue $5,237.8 16% * Calculation not
meaningful (1) North America Active Representative growth benefited
from increased ordering opportunities in Canada as a result of a
move from a three- week campaign cycle to a two-week campaign cycle
beginning in the second quarter of 2008. (2) 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. DATASOURCE: Avon Products, Inc. CONTACT: Investors, Renee
Johansen or Anita Bialkowska, +1-212-282-5320, or Media, Sharon
Samuel, +1-212-282-5322, Jennifer Vargas, +1-212-282-5404, Victor
Beaudet, +1-212-282-5344, 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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