Avon Reports Third Quarter Earnings of $.56 Per Share Sales Up 11%
on 15% Growth in Beauty Sales NEW YORK, Oct. 28
/PRNewswire-FirstCall/ -- Avon Products, Inc. today reported
earnings per share in the third quarter of 2003 of $.56, exceeding
the high-end of the company's earlier guidance. The company also
raised its earnings expectation for the full-year to $2.65 - $2.70
per share, up from earlier guidance of $2.60 - $2.65 per share.
Avon said the third quarter earnings of $.56 per share included a
two-and-a-half cents per share benefit from a tax audit settlement
and receipt of an IRS interest refund, offset by one-and-a-half
cents per share of expenses related to the redemption of a
convertible bond issue in July. In the third quarter of 2002, Avon
reported earnings of $.38 per share, including a net charge of
$36.3 million ($25.2 million after-tax, or $.10 per share) related
to the company's Business Transformation initiatives. Excluding
that net charge, third quarter 2003 earnings of $.56 per share rose
17% from the prior year's results. Sales in the third quarter of
2003 rose 11% to $1.61 billion -- the highest quarterly growth rate
in nearly nine years -- versus $1.45 billion in the year ago
period. The sales growth was driven by a healthy 15% increase in
beauty sales and a 10% gain in the number of active
Representatives, with all geographic regions contributing.
Excluding the impact of foreign currency exchange, sales rose 9%.
Units in the quarter rose 3%, as a 5% increase in Beauty units was
slightly offset by a 3% decrease in non-Beauty units. Gross margin
of 62.8% in the third quarter was 150 basis points higher versus
the prior year's gross margin. Operating profit in the quarter
increased 36% to $211.0 million, and operating margin of 13.0% was
240 basis points above that of the year-earlier quarter, which
included the net charge. Excluding the net charge from the
prior-year quarter, Avon said that third quarter 2003 gross margin
improved 140 basis points to 62.8%, driven by product mix and
ongoing supply chain efficiencies. Operating profit increased 10%.
Operating margin of 13.0% was in line with the prior year's 13.1%,
even after the company invested an incremental 190 basis points of
operating margin towards ongoing strategic investments to support
the company's growth initiatives. Net income in the quarter
increased 47% to $133.1 million, compared with $90.3 million in the
third quarter of 2002. Excluding the prior-year net charge, net
income rose 15%. Cash flow from operations in the third quarter of
2003 was $110.5 million compared with $36.2 million in the
prior-year period, which included an $80 million contribution to
the company's U.S. pension fund. The company said that full-year
cash flow from operations continues to track to a target in the
range of $650 million. Commenting on the quarter, Andrea Jung,
Avon's chairman and chief executive officer said, "We're very
pleased to have delivered another quarter of stand-out growth on
the broad-based strength of our global direct selling operations,
giving me confidence that we can continue our positive momentum
through the fourth quarter and into 2004. "Our international
operations again led the solid performance with a healthy 15%
increase in sales and a 19% gain in operating profit. The U.S., our
largest market, resumed strong sales growth of 7% and posted a 9%
advance in sales of beauty products on promising early results from
two launches in the quarter -- our latest blockbuster skincare
product, Anew Clinical, and a new product line and earnings
opportunity for the next generation of Avon, Mark. From the time of
Mark's launch in early August through the end of the third quarter,
we appointed approximately 16,000 Mark Representatives, and that
number continues to grow as a result of the brand's already high
consumer awareness. Mark sales contributed over one point of growth
to the U.S. third quarter sales advance, leaving us encouraged in
these early days," Ms. Jung said. "Building on the continued
strength of our operations worldwide, and given a more favorable
exchange rate outlook and the tax settlement and interest refund,
we are raising our 2003 targets to a range of $2.65 - $2.70 per
share from earlier levels. Looking to 2004, we believe we can
achieve EPS growth of 10-12% on the base of our newly raised 2003
targets, assuming no sizeable weakening of major currencies," Ms.
Jung added. The company said it expects fourth quarter sales growth
to be at least in line with that of the third quarter, operating
profit growth to exceed 20%, and operating margin to expand in the
range of 200 basis points. Avon will conduct a conference call
today at 9 a.m. New York time to discuss the results for the
quarter and the outlook for the rest of the year. The conference
call will be webcast live and can be accessed at
http://www.avoninvestor.com/. REGIONAL HIGHLIGHTS In the U.S.,
sales grew a strong 7%, on top of 6% growth in last year's third
quarter, driven by increases in units and active Representatives of
7% and 3%, respectively. Sales of beauty products increased 9%, on
the strength of a 22% advance in skin care and the launch of Mark,
the company's new brand for young women. The Avon Wellness brand
sustained its momentum with over 20% growth. U.S. operating profit
was up slightly from last year's quarter, while operating margin,
as expected, decreased 80 basis points due to significant
investments in consumer growth initiatives, including the launches
of Anew Clinical and Mark. The Europe Region posted dollar sales
growth of 23% on local currency sales growth of 14%, resulting from
double-digits gains in almost every major market and a full quarter
of sales following the buyout of the company's joint-venture
partner in Turkey. Units in the region grew 9% and the number of
active Representatives was up 13%. Russia once again delivered
standout performance with sales up 60%, driven by gains in units
and active Representatives of 48% and 42%, respectively. Europe's
operating profit grew a significant 53%, resulting in 290 basis
points of operating margin expansion as the region continued to
benefit from supply chain initiatives. In Latin America, sales in
the quarter were up 14% in both dollars and local currencies,
supported by an 11% increase in active Representatives and 1%
growth in units. Strong local currency sales in the region were
fully translated into dollars due to favorable exchange rates. The
region's operating profit grew 12%; however, operating margin
decreased 40 basis points as significantly higher strategic growth
investments in Brazil more than offset strong gross and operating
margin improvements in almost all other markets. In the Pacific
region, sales in the quarter rose 7% in dollars and 5% in local
currencies, with active Representatives up 13% and units up 2%.
China generated sales growth of 30%, driven by a 22% increase in
units, as business returned to normal levels following the impact
of SARS in the second quarter. Japan continued its momentum with
solid increases in sales, units and active Representatives. The
region's operating profit increased 4% as the cost of
transformational initiatives to reorganize sales branches in
Malaysia reduced the region's operating profit growth by 10
percentage points. The sales branch reorganization also impacted
operating margin, which declined 40 basis points. NINE-MONTH
RESULTS For the first nine-months of 2003, Avon reported earnings
per share of $1.69, versus $1.42 per share in the year-earlier
period. Net income in the first nine months of 2003 was $404
million. Sales in the first nine months of 2003 rose 9% to $4.72
billion, from $4.33 billion in the first nine months of 2002.
Excluding the impact of foreign currency exchange, sales were up
10% over prior year. Avon is the world's leading direct seller of
beauty and related products, with $6.2 billion in annual revenues.
Avon markets to women in 143 countries through 3.9 million
independent sales Representatives. Avon product lines include such
recognizable brand names as Avon Color, Anew, Skin-So-Soft, Advance
Techniques Hair Care, mark., beComing 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.avon.com/. Cautionary Statement under
the Private Securities Litigation Reform Act of 1995 Statements in
this release, which 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 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 economic and political uncertainties
in Latin America; 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 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, 2002,
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 Nine months ended Percent
September 30 Change September 30 Change 2003 2002 2003 2002 Net
sales $1,613.2 $1,448.8 11% $4,718.7 $4,334.4 9% Other revenue 16.2
14.6 48.1 39.8 Total revenue 1,629.4 1,463.4 11% 4,766.8 4,374.2 9%
Cost of sales (1) & (3) 606.9 566.8 1,801.2 1,696.3 Marketing,
distribution and administrative expenses (1) 811.5 707.6 2,311.2
2,093.9 Special charge (3) 0.0 34.3 0.0 34.3 Operating profit 211.0
154.7 36% 654.4 549.7 19% Interest expense 6.5 14.2 27.0 40.5
Interest income (2.8) (2.9) (8.3) (10.9) Other expense (income),
net (2) 11.0 (0.1) 22.6 (14.4) Total other expenses (1) 14.7 11.2
41.3 15.2 Income from continuing operations before taxes and
minority interest 196.3 143.5 37% 613.1 534.5 15% Income taxes (4)
61.5 51.4 203.6 187.5 Income from continuing operations before
minority interest 134.8 92.1 46% 409.5 347.0 18% Minority interest
(1.7) (1.8) (6.0) (5.4) Net income $133.1 $90.3 47% $403.5 $341.6
18% Earnings per share: Basic $.56 $.38 47% $1.71 $1.45 18% Diluted
(5) $.56 $.38 47% $1.69 $1.42 19% Average shares outstanding: Basic
236.15 235.88 235.38 236.34 Diluted 239.61 244.84 242.55 245.81
Notes: (1) Effective January 1, 2003, certain reclassifications
were reflected within Cost of sales, Marketing, distribution &
administrative expenses and Total other expenses, net. These
reclassifications had no impact on Net income or Earnings per
share. For comparison purposes, the prior periods were adjusted to
conform to the current period presentation. (2) For the three
months ended September 30, Other expense (income), net includes
foreign exchange losses (gains) of $3.5 and ($2.0) in 2003 and
2002, respectively. For the nine months ended September 30, Other
expense (income), net includes foreign exchange losses (gains) of
$12.3 and ($18.7) in 2003 and 2002, respectively. The three and
nine months ended September 30, 2003, include foreign exchange
(gains) losses of ($0.2) and $2.9, respectively, related to U.S.
dollar denominated assets, mainly in Argentina, Venezuela, Brazil
and Mexico. The three and nine months ended September 30, 2002,
include foreign exchange gains of ($3.8) and ($30.1), respectively,
related to U.S. dollar denominated assets, mainly in Argentina,
Venezuela, Brazil and Mexico. The three and nine months ended
September 30, 2003, include $6.4 of deferred debt issuance costs
related to the redemption of convertible notes. (3) For the three
and nine months ended September 30, 2002, the Company recorded a
Special charge of $43.6 pretax ($30.4 after-tax; $0.12 diluted EPS)
related to the Company's Business Transformation initiatives. Also,
the Company recorded a benefit of $7.3 pretax ($5.2 after-tax;
$0.02 diluted EPS) from an adjustment to the Special charge for
Business Transformation initiatives recorded in the fourth quarter
of 2001. The net effect of the two unusual items was a charge of
$36.3 pretax ($25.2 after-tax; $0.10 diluted EPS), of which $2.0
pretax was included in Cost of sales. (4) For the three months
ended September 30, 2003, earnings per share was impacted by a
decline in the tax rate resulting from a reduction in tax expense
of $6.0 due to a favorable audit settlement and an IRS interest
refund. (5) For purposes of calculating diluted earnings per share
for the three months ended September 30, 2003 and 2002, after tax
interest expense of $0.4 and $2.6, respectively, applicable to
convertible debt was added back to net income. For the nine months
ended September 30, 2003 and 2002, after tax interest expense of
$5.7 and $7.8, respectively, applicable to convertible debt was
added back to net income. AVON PRODUCTS, INC. RECONCILIATION
SCHEDULE (in millions, except per share data) Three Months Ended
September 30 Total Gross Operating Operating Revenue Profit
Expenses Profit 2003 As Reported $1,629.4 $1,022.5 $811.5 $211.0 %
vs. prior year 11% 14% 9% 36% % vs. prior year adjusted 11% 14% 15%
10% 2002 As Reported $1,463.4 $896.6 $741.9 $154.7 Special Charge
-- 2.0 (41.6) 43.6 Reversal of 2001 Charge -- -- 7.3 (7.3) Adjusted
$1,463.4 $898.6 $707.6 $191.0 Three Months Ended September 30 Net
Diluted Gross Operating Income E.P.S. Margin Margin 2003 As
Reported $133.1 $0.56 62.8% 13.0% % vs. prior year 47% 47% 1.5 pts
2.4 pts % vs. prior year adjusted 15% 17% 1.4 pts (.1) pts 2002 As
Reported $90.3 $0.38 61.3% 10.6% Special Charge 30.4 0.12 0.1% 3.0%
Reversal of 2001 Charge (5.2) (0.02) 0.0% -0.5% Adjusted $115.5
$0.48 61.4% 13.1% This supplemental schedule provides, on a
historical basis, adjusted non-GAAP financial information and a
quantitative reconciliation of the differences between the non-GAAP
financial measures with the financial measures calculated and
presented in accordance with GAAP. This information is provided to
assist in investors' understanding of the Company's results of
operations. Results are adjusted to exclude a special charge of
$43.6 million recorded in the third quarter of 2002, primarily for
severance costs related to the Company's Business Transformation
initiatives. Also excluded is a benefit of $7.3 million, primarily
related to severance costs, from an adjustment to the special
charge for Business Transformation initiatives recorded in the
fourth quarter of 2001. These items are unusual in nature and
materially impact the comparability of the Company's results of
operations. The adjusted information is intended to be more
indicative of Avon's ongoing operations, and is intended to assist
investors in evaluating performance and analyzing trends across
periods. The Company believes it would not be practical or
meaningful to provide a quantitative reconciliation for Avon's
non-GAAP forward-looking information. AVON PRODUCTS, INC. -
SUPPLEMENTAL SCHEDULE THIRD QUARTER 2003 - THREE MONTHS ENDED
9/30/03 REGIONAL RESULTS Net Sales in Local Operating Op. Active $
in Millions Net Sales Currency Profit US$ Margin Units Reps US$ %
var. % var. % var. 2003 % var. % var. vs vs vs vs vs 3Q02 3Q02 3Q02
percent 3Q02 3Q02 North America $578.7 5% 5% $82.0 -1% 13.9% 3% 2%
US 509.5 7 7 79.0 1 15.2 7 3 International 1,034.5 15 12 197.0 19
18.9 3 12 Latin America 460.6 14 14 109.9 12 23.8 1 11 Europe 349.9
23 14 52.7 53 15.0 9 13 Pacific 224.0 7 5 34.4 4 15.1 2 13 Total
from Operations 1,613.2 11 9 279.0 12 17.1 3 10 Global Expenses (1)
-- -- - (68.0) -19 -- - -- Consolidated (1) $1,613.2 11% 9% $211.0
10% 13.0% 3% 10% CATEGORY SALES (US$) Consolidated US % var. vs %
var. vs 3Q02 3Q02 Beauty (cosmetics/fragrances/toiletries) $1,075.9
15% $276.5 9% Beauty Plus (fashion jewelry/watches/
apparel/accessories) 300.0 4 131.9 6 Beyond Beauty (home
products/gift and decorative/candles) 237.3 4 101.1 2 $1,613.2 11%
$509.5 7% THIRD QUARTER 2003 - NINE MONTHS ENDED 9/30/03 REGIONAL
RESULTS Net Sales in $ in Millions Net Sales Local Operating Op.
Active US$ Currency Profit US$ Margin Units Reps % var. % var. %
var. 2003 % var. % var. vs vs vs percent vs vs 9M02 9M02 9M02 9M02
9M02 North America $1,753.5 3% 3% $284.9 -4% 16.0% 3% 3% US 1,540.1
3 3 288.4 2 18.4 4 3 International 2,965.2 13 15 561.2 21 18.8 6 15
Latin America 1,260.2 2 16 281.7 9 22.3 1 13 Europe 1,054.6 31 19
174.5 50 16.5 17 23 Pacific 650.4 9 6 105.0 18 15.9 4 11 Total from
Operations 4,718.7 9 10 846.1 11 17.8 5 13 Global Expenses (1) -- -
-- (191.7) -9 -- - -- Consolidated (1) $4,718.7 9% 10% $654.4 12%
13.7% 5% 13% CATEGORY SALES (US$) Consolidated US % var. vs % var.
vs 9M02 9M02 Beauty(cosmetics/fragrances/toiletries) $3,172.3 14%
$867.8 10% Beauty Plus (fashion jewelry/watches/
apparel/accessories) 887.5 0 398.6 -1 Beyond Beauty (home
products/gift and decorative/candles) 658.9 1 273.7 -7 $4,718.7 9%
$1,540.1 3% (1) 2002 excludes a Special charge of $43.6 pretax
($30.4 after-tax; $0.12 diluted EPS) related to the Company's
Business Transformation initiatives. 2002 also excludes a benefit
of $7.3 pretax ($5.2 after-tax; $0.02 diluted EPS) from an
adjustment to the Special charge for Business Transformation
initiatives recorded in the fourth quarter of 2001. The net effect
of the two unusual items is a charge of $36.3 pretax ($25.2
after-tax; $0.10 diluted EPS). DATASOURCE: Avon Products, Inc.
CONTACT: Media, Victor Beaudet, +1-212-282-5344, or 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:
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