AVP Avon Products Inc

Avon Products Inc. (AVP) recently posted first-quarter 2011 adjusted earnings of 37 cents a share, which beat the Zacks Consensus Estimate of 31 cents and increased 12.1% from the year-ago figure of 33 cents a share. On a reported basis, including one-time items, earnings jumped 230% to 33 cents per share from 10 cents per share in the year-ago quarter.

Total sales of the company rose 7.0% year over year to $2,629.1 million compared with $2,446.3 million a year ago. Total revenue also beat the Zacks Consensus Estimate of $2,585.0 million.

The company’s beauty product sales increased 8.0%, driven by growth of 10% in fragrance, 6% in color, 7% in skincare, and 8% in personal care.

Sales by Region

Avon delivered 16% revenue growth in Latin America, primarily driven by a 6.0% increase in units sold and an 11.0% rise in Brazil, along with impressive 23.0% growth in Mexico and 39% in Venezuela. Active representatives also increased 4.0%.

In North America, sales decreased 2.0% year over year, pulled down by a 14.0% decline in units sold, which was partially countered by revenue gains in Silpada, improving 8%, while active representatives fell 6.0%.

The beauty product maker’s revenues in Western Europe, Middle East and Africa surged 16.0% year over year, elevated by a 10.0% growth in active representatives and 7% growth in units along with additional revenues from the newly acquired Liz Earle Beauty Co. Limited, which added a further 4% to revenue growth.

Macroeconomic pressures continued to hamper Central and Eastern Europe revenue, which reported flat growth during the quarter with 1% fall in unit volume. The region marked a 4.0% decline in active representatives.

The Asia-Pacific division witnessed a decrease of 6.0% in revenues, attributable to a sizeable 11.0% fall in units sold. Active representatives also declined 14.0% during the quarter. China proved to be a major disappointment with revenues sliding 32.0% during the quarter. However, Philippines mitigated the fall in revenue to some extent by reporting an increase of 7%.

Margin Expansion

Avon’s gross margin expanded 80 basis points year over year to 63.9% due to favorable currency impact and improved pricing partially offset by higher product cost and an adverse product mix. Operating profit also jumped 11% while operating margin expanded 30 basis points to 9.9%. Higher gross margin contributed to the increase.

Other Financial Details

The leading global beauty company exited the quarter with cash and cash equivalents of $1,015.3 million, long-term debt of $2,391.1 million, and shareholders’ equity of $1,839.6 million.

The company used cash from operations of $32 million in the first quarter of fiscal 2011 versus the source of $10 million cash from operating activities in the same period last year. The decrease in cash from operation resulted from higher inventories and a $75 million contribution to the U.S. pension plan.  The company expended $55 million in capital expenditure for the quarter.

Guidance

Riding on the success of the first quarter, the company hinted that strong field programs coupled with an innovative pipeline should result in mid single-digit constant dollar revenue growth in 2011. The company also anticipates 50–70 basis points of increase in operating margin.

Avon currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Avon Products is a leading global beauty company and, as the world's largest direct seller of beauty and related products, targets women consumers in over 100 countries through 6.2 million independent sales representatives. The company also derives a substantial portion of its revenue from high-growth emerging markets, which offer a significant future upside potential.

Worldwide, Avon competes against products sold to consumers by other direct-selling and direct-sales companies and through the Internet and against products sold in the mass market and through prestige retail channels. The company competes head-to head with Revlon Inc. (REV).

Avon Products (NYSE:AVP)
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