Avon Reports Third Quarter Earnings of $.37 Per Share, Up 32%, $.03
Per Share Ahead of Earlier Guidance Third Quarter Sales Increase
11%; Operating Margin Advances 150 Basis Points NEW YORK, Oct. 29
/PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE:AVP) today
reported that earnings in the third quarter 2004 increased 32% to
$.37 per share, $.03 per share ahead of earlier guidance due to
higher-than-anticipated operating profit. In the third quarter
2003, Avon reported earnings of $.28 per share. Avon said that the
$.03 upside to third quarter earnings per share came primarily from
operations, with stronger-than-expected performance in the
company's international regions -- particularly Europe and Latin
America - and with the U.S. performing in line with earlier
guidance. The company also raised its outlook for full-year 2004 to
$1.75-$1.77 per share, at least 26% above prior year, and up from
earlier guidance of $1.72 per share. The improved outlook reflects
the third quarter's overachievement, as well as potential for a
lower effective fourth quarter tax rate of 29-30% due to increased
benefits realized from the company's previously announced tax and
cash management strategies. Sales in the third quarter grew 11% to
$1.78 billion, up from $1.60 billion in the year-ago period.
Excluding the impact of foreign currency exchange, sales rose 10%.
Units and active Representatives increased 15% and 11%,
respectively, and sales of Beauty products rose 15%, outpacing
overall growth. Operating profit in the quarter increased an
exceptional 25%, exceeding earlier expectations, and operating
margin improved 150 basis points versus the prior-year quarter. The
company's third quarter effective tax rate was 30.7%, in line with
earlier guidance. Net income in the quarter increased 33% to $176.9
million, compared with $133.1 million in last year's third quarter.
Net cash provided by operations in the third quarter 2004 was
$139.7 million, $29.3 million ahead of the prior-year quarter.
Commenting on the company's third quarter performance, Andrea Jung,
Avon's chairman and chief executive officer said, "We are extremely
pleased with the continuing strength of our global portfolio which
has enabled us to deliver another quarter of outstanding results,
despite sluggish sales in the U.S. Europe, Latin America and Asia
Pacific all delivered double-digit growth in local-currency sales,
units and dollar operating profit. Additionally, each of these
regions achieved at least 200 basis points of operating margin
expansion. The overall top and bottom line strength across these
three key geographies contributed to the higher-than-anticipated
performance in the third quarter." Third Quarter Regional
Highlights Avon said that sales in the U.S declined 1% versus a 7%
gain in the third quarter of 2003, reflecting weak consumer
response to color cosmetics promotions in advance of a late
September category re-launch, and underperformance in children's
apparel and toys. Additionally, several hurricanes occurring late
in the quarter are estimated to have negatively impacted sales and
operating profit growth by one point and two points, respectively.
The storms also had an approximate one-point negative impact on
active Representative growth, which was flat in the quarter in part
due to weaker consumer activity. Units in the quarter increased 1%.
Sales of Beauty and Beauty Plus products were flat, and sales in
the Beyond Beauty category declined 6%. U.S. operating profit
declined 9% due to the sales decline, as well as higher freight and
materials costs, which contributed to an operating margin decrease
of 140 basis points. The Latin America region had third quarter
sales growth of 8% in dollars and 13% in local currencies
reflecting broad-based strength across the region, and in
particular Venezuela and Brazil. Units in the region increased 12%
and active Representatives were up 11%. Mexico and Brazil, Avon's
second and third largest markets, each had a healthy gain in
local-currency sales of 10% and 8%, respectively. Operating profit
in the region exceeded expectations, advancing 18% in the third
quarter and operating margin improved by 230 basis points to 26.6%.
In Europe, third quarter sales grew at an accelerated rate,
advancing 33% in dollars and 24% in local currency, exceeding
earlier expectations. Units and active Representatives increased
33% and 21%, respectively. The markets of Central and Eastern
Europe delivered an exceptionally strong overall performance, with
sales in Russia growing over 80%, or over 70% on a local- currency
basis, in the quarter. Sales in the U.K. increased more than 20%,
with local-currency sales up almost 10%, due to highly focused
consumer promotions and field sales incentive programs, including
the launch of the updated Avon Color line and its flagship product,
My Lip Miracle. Operating profit in Europe increased 60% in the
third quarter, and operating margin expanded by 310 basis points to
18.1%. Asia Pacific generated robust operating performance as sales
increased 14% in dollars and 12% in local currencies. Units grew
22% and active Representatives grew 14% benefiting from an
increased number of sales campaigns in the Philippines that
resulted in more frequent Representative ordering. China continued
its standout performance with sales growing 37% in the quarter. The
markets of Southeast Asia were also strong performers with sales
growth of 14%, and operating profit growth of nearly 60% following
a 2003 Malaysian field reorganization. Operating profit for the
region as a whole rose 29%, and operating margin expanded by 200
basis points to 17.1%. Outlook for Fourth Quarter and Full-Year
2004 Looking ahead to the fourth quarter, Avon said that it expects
double-digit sales growth in both local currencies and dollars, in
line with the third quarter. Growth in Beauty sales should again
outpace overall sales growth by at least two points, and units and
active Representatives should each increase by double digits.
Operating profit is expected to grow in line with sales, even after
an incremental $30 million in consumer and strategic investments
including doubling the advertising spend to sustain high growth in
Russia, China, Brazil and the U.K. Earnings per share in the
quarter are expected to be $.58-$.60. Avon had earnings per share
of $.55 in the prior-year period, which included a $.04 per share
favorable impact from a tax settlement and reversal of previously
recorded restructuring charges. In the U.S., fourth quarter sales
are forecast to decline approximately 3% in a weaker than expected
consumer environment, reflecting a mid-teens decrease in the Beyond
Beauty category, which is projected to have as much as a five-point
unfavorable impact. Active Representatives are forecast to grow 1%
and sales of Beauty products are expected to be flat with the prior
year. U.S. operating profit is expected to be in the range of $110
million in the quarter, versus $133 million in the year-ago period,
due primarily to the sales decline and, to a lesser degree,
continuing pressure on freight and material costs. Stronger
operating profit in international regions is expected to fully
offset the U.S. shortfall. Latin America is projected to grow sales
and operating profit in the high-single digits and mid-teens,
respectively. Europe's sales and operating profit should increase
in the range of 25% and 35%, respectively. The Asia Pacific region
is forecast to grow sales and operating profit in the mid-single
digits and mid-teens range, respectively. Commenting on the
full-year, Ms. Jung said, "We are pleased to raise our full-year
earnings expectation to $1.75 per share, and as high as $1.77 per
share based on the increased probability for certain benefits from
our previously announced tax and cash management strategies. In
addition to the stronger earnings, we also anticipate that
full-year cash flow from operations should exceed our targeted $800
million, compared with $745 million in the prior-year period. "We
are extremely pleased that the exceptional strength of our global
geographic portfolio and the flexibility it provides will enable us
to deliver another year of standout performance despite a difficult
U.S. consumer environment and challenges in the U.S. Beyond Beauty
segment. Going forward, we intend to fully exit certain Beyond
Beauty categories and significantly restructure others as we
restore the U.S. business to healthy growth. "We are very proud
that 2004 is shaping up to be the third consecutive year in which
earnings will grow at least 20%. Looking ahead, we see another
strong year in 2005, and again expect to achieve our long-term
annual targets of double-digit local-currency sales growth and at
least 10% earnings per share growth as the transformation of Avon
continues to take hold around the world." Avon will conduct a
conference call today at 9 a.m. New York time to discuss the
results for the quarter and outlook for the fourth quarter of 2004.
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 $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 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 information systems
initiatives; 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. AVON PRODUCTS, INC. CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data) Three Nine months ended
Percent months ended Percent September 30 Change September 30
Change 2004 2003 2004 2003 Net sales (1) $1,784.7 $1,604.5 11%
$5,370.5 $4,696.8 14% Other revenue 21.5 16.2 66.8 48.1 Total
revenue (1) 1,806.2 1,620.7 11% 5,437.3 4,744.9 15% Cost of sales
(1) 675.2 606.6 2,005.3 1,800.3 Marketing, distribution and
administrative expenses (1) 868.2 803.1 2,614.3 2,290.2 Operating
profit 262.8 211.0 25% 817.7 654.4 25% Interest expense 8.2 6.5
24.1 27.0 Interest income (5.5) (2.8) (13.9) (8.3) Other expense,
net (2) 2.1 11.0 9.4 22.6 Total other expenses 4.8 14.7 19.6 41.3
Income before taxes and minority interest 258.0 196.3 31% 798.1
613.1 30% Income taxes (3) 79.2 61.5 232.5 203.6 Income before
minority interest 178.8 134.8 565.6 409.5 Minority interest (1.9)
(1.7) (8.3) (6.0) Net income $176.9 $133.1 33% $557.3 $403.5 38%
Earnings per share:(4) Basic $.37 $.28 32% $1.18 $.86 37% Diluted
(5) $.37 $.28 32% $1.17 $.84 39% Average shares outstanding: Basic
473.08 472.30 472.39 470.77 Diluted 479.36 479.22 478.20 485.11
Notes: (1) For the three and nine months ended September 30, 2003,
and the nine months ended September 30, 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 ended September 30,
Other expense, net includes net foreign exchange losses of $1.2 and
$3.5 in 2004 and 2003, respectively. For the nine months ended
September 30, Other expense, net includes net foreign exchange
losses of $5.9 and $12.3 in 2004 and 2003, respectively. The three
and nine months ended September 30, 2003 also include $6.4 of
expense for the write-off of deferred debt issue costs due to the
redemption of convertible notes. (3) For the three and nine months
ended September 30, 2004, Income taxes were impacted by a decline
in the tax rate resulting from a reduction in tax expense of $8.7
and $37.4, respectively, due to cash management and tax strategies,
favorable audit settlements, and amended returns as well as tax and
interest refunds. For the three and nine months ended September 30,
2003, Income taxes were impacted by a decline in the tax rate
resulting from a reduction in tax expense of $6.0 and $10.8,
respectively, due to a favorable audit settlement and an IRS
interest refund. (4) 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. (5) For purposes of calculating diluted
earnings per share for the three and nine months ended September
30, 2003, after tax interest expense of $0.4 and $5.7,
respectively, applicable to convertible debt was added back to net
income. AVON PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions) September 30 December 31 2004 2003 Cash
and cash equivalents $607.4 $694.0 Accounts receivable 641.8 599.8
Inventories 825.9 653.4 Prepaid expenses and other 306.2 278.9
Total current assets 2,381.3 2,226.1 Property, plant and equipment,
net 930.5 855.6 Other assets 523.3 480.6 Total assets $3,835.1
$3,562.3 Debt maturing within one year $233.8 $244.1 Accounts
payable 440.9 400.1 Other current liabilities 931.1 943.5 Total
current liabilities 1,605.8 1,587.7 Long-term debt 865.3 877.7
Other non-current liabilities 655.0 725.6 Total shareholders'
equity 709.0 371.3 Total liabilities and shareholders' equity
$3,835.1 $3,562.3 AVON PRODUCTS, INC. CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited) (In millions) Nine Months Ended September 30
2004 2003 Cash Flows from Operating Activities: Net income $557.3
$403.5 Depreciation and amortization 96.4 91.7 Provision for
doubtful accounts 101.0 88.1 Provision for obsolescence 44.3 40.4
Deferred income taxes (39.9) 1.1 Other (3.3) 11.0 Changes in assets
and liabilities: Accounts receivable (144.5) (98.6) Inventories
(214.6) (156.6) Prepaid expenses and other (18.1) (49.6) Accounts
payable and accrued liabilities 103.6 (30.5) Income and other taxes
(55.4) (45.3) Noncurrent assets and liabilities (59.1) (30.2) Net
cash provided by operating activities 367.7 225.0 Cash Flows from
Investing Activities: Capital expenditures (162.4) (102.9) Disposal
of assets 6.9 13.3 Other investing activities (48.2) (29.9) Net
cash (used in) investing activities (203.7) (119.5) Cash Flows from
Financing Activities: Cash dividends (202.5) (150.9) Total debt,
net change (12.1) (165.9) Repurchase of common stock (143.6) (95.6)
Proceeds from exercise of stock options, net of taxes 109.4 78.5
Other financing activities (0.2) 1.3 Net cash (used in) financing
activities (249.0) (332.6) Effect of exchange rate changes on cash
and equivalents (1.6) 4.9 Net (decrease) in cash and equivalents
$(86.6) $(222.2) AVON PRODUCTS, INC. - SUPPLEMENTAL SCHEDULE THIRD
QUARTER 2004 - THREE MONTHS ENDED 9/30/04 REGIONAL RESULTS Net
Sales in $ in Millions Local Net Sales US$ Currency Operating
Profit US$ % var. % var. % var. vs 3Q03 vs 3Q03 vs 3Q03 North
America $578.6 0% 0% $77.8 -5% US 502.6 -1 -1 71.6 -9
International(1) 1,206.1 18 16 258.3 31 Latin America(1) 485.7 8 13
129.3 18 Europe 464.2 33 24 84.5 60 Asia Pacific(2) 256.2 14 12
44.5 29 Total from Operations(1)(2) 1,784.7 11 10 336.1 20 Global
Expenses - - - (73.3) -8 Consolidated(1)(2) $1,784.7 11% 10% $262.8
25% $ in Millions Op. Margin Units Active Reps % var. vs % var. vs
2004 percent 3Q03 3Q03 North America 13.1% 3% 1% US 13.9 1 0
International (1) 21.3 19 14 Latin America (1) 26.6 12 11 Europe
18.1 33 21 Asia Pacific (2) 17.1 22 14 Total from Operations (1)(2)
18.6 15 11 Global Expenses - - - Consolidated (1)(2) 14.5% 15% 11%
CATEGORY SALES (US$) Consolidated % var. vs 3Q03
Beauty(cosmetics/fragrances/toiletries) $1,230.9 15% Beauty Plus
(fashion jewelry/watches/apparel/accessories) 318.9 7 Beyond Beauty
(home products/gift and decorative/candles) 234.9 -1 $1,784.7 11%
US % var. vs 3Q03 Beauty(cosmetics/fragrances/toiletries) $276.1 0%
Beauty Plus (fashion jewelry/watches/apparel/accessories) 131.6 0
Beyond Beauty (home products/gift and decorative/candles) 94.9 -6
$502.6 -1% THIRD QUARTER 2004 - NINE MONTHS ENDED 9/30/04 REGIONAL
RESULTS Net Sales in Local $ in Millions Currency Net Sales US$
9M03 Operating Profit US$ % var. % var. % var. vs 9M03 vs 9M03 vs
9M03 North America $1,811.3 3% 3% $298.9 5% US 1,585.0 3 3 276.7 -4
International (1) 3,559.2 21 17 760.0 35 Latin America (1) 1,396.7
13 15 340.8 21 Europe 1,400.3 33 22 282.8 62 Asia Pacific (2) 762.2
17 13 136.4 30 Total from Operations (1) (2) 5,370.5 14 12 1,058.9
25 Global Expenses - - - (241.2) -26 Consolidated (1) (2) $5,370.5
14% 12% $817.7 25% $ in Millions Op. Margin Units Active Reps %
var. % var. 2004 percent vs 9M03 vs 9M03 North America 16.1% 6% 2%
US 17.0 5 2 International (1) 21.2 17 13 Latin America (1) 24.4 12
11 Europe 20.1 23 15 Asia Pacific (2) 17.6 22 14 Total from
Operations (1) (2) 19.5 14 11 Global Expenses - - - Consolidated
(1) (2) 15.0% 14% 11% CATEGORY SALES (US$) Consolidated % var. vs
9M03 Beauty(cosmetics/fragrances/toiletries) $3,732.7 18% Beauty
Plus (fashion jewelry/watches/apparel/accessories) 963.1 9 Beyond
Beauty (home products/gift and decorative/candles) 674.7 3 $5,370.5
14% US % var. vs 9M03 Beauty(cosmetics/fragrances/toiletries)
$910.2 5% Beauty Plus (fashion jewelry/watches/apparel/accessories)
413.9 4 Beyond Beauty (home products/gift and decorative/candles)
260.9 -5 $1,585.0 3% (1) For the three and nine months ended
September 30, 2003, and the nine months ended September 30, 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 third quarter
of 2004, resulting in additional opportunities to order. This
change positively impacted Active Representative growth in Asia
Pacific for the three and nine months ended September 30, 2004 by 8
points and 4 points, respectively. This change positively impacted
Active Representative growth for Consolidated Avon for the three
and nine months ended September 30, 2004 by 1 point in each period.
DATASOURCE: Avon Products, Inc. CONTACT: Media - Victor Beaudet,
+1-212-282-5344, 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
Copyright
Avon Products (NYSE:AVP)
Historical Stock Chart
From Jun 2024 to Jul 2024
Avon Products (NYSE:AVP)
Historical Stock Chart
From Jul 2023 to Jul 2024