Beauty Sales Grew 15%; Active Representatives Up 5% NEW YORK, Oct.
30 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE: AVP) today
reported that third-quarter 2008 total revenue grew 13% year over
year (6% in local currency) to $2.6 billion. Sales of Beauty
products rose 15%. Active Representatives increased 5%. Revenues
benefitted 7% from pricing and mix, and units sold decreased 1%
versus the prior-year quarter. Operating profit rose 33%, to $297
million from $224 million, and the company's operating margin rose
to 11.2% from 9.5% in the year-ago quarter. Net income in the third
quarter 2008 was $223 million compared with $139 million in the
year-ago quarter. Earnings per share were $.52 versus $.32 per
share in the prior-year quarter, or 63% higher. Earnings per share
in the 2008 quarter benefitted from one-time tax adjustments of
$.09 per share. Andrea Jung, chairman and CEO, commented, "Avon's
third-quarter performance reflects continued momentum of our
turnaround plan. Our investments in advertising and the
Representative Value Proposition (RVP) are yielding strong results.
Again this quarter, growth in our Beauty sales outpaced our overall
revenue growth rate. Additionally, our performance is benefitting
from the savings and benefits from our restructuring program and
strategic initiatives, as those programs remain on track to our
longer term expectations." The company's 15% growth in Beauty sales
included increases in all categories: Color was up 19%, Fragrance
grew 18%, Skin Care increased 9% and Personal Care rose 13%. Beauty
sales benefitted in part from a year-over-year 11% increase in
advertising expense, to $106 million. Advertising supported the
launch of new products, such as the Anew Rejuvenate line of skin
care, U by Ungaro fragrances and Pro-To-Go lipstick, as well as
Representative recruitment advertising in priority markets.
Additionally, 2008's third quarter included an incremental $21
million of costs for initiatives to improve the Representative
Value Proposition. Third-quarter 2008 operating profit included
costs associated with the company's restructuring program of $14
million ($.02 per share after tax), versus costs of $33 million
($.05 per share after tax) related to the company's restructuring
program ($27 million) and Product Line Simplification initiative
(PLS) ($6 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. Additionally, Avon reiterated that
beginning in 2010, it expects to achieve 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. At quarter end, Avon's total debt had increased
$313 million from the year-end level, and cash had increased $4
million. Net cash provided by operating activities was $303 million
through nine months of 2008, compared with $63 million in the same
period of 2007. This favorable comparison was due in large part to
higher net income and improved management of inventory and accounts
receivable levels. 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.
Third-Quarter Regional Highlights Latin America's third-quarter
revenue rose 25% year over year (13% in local currency). Avon said
that revenue increased over 30% in Brazil, nearly 40% in Venezuela,
and nearly 10% in Mexico. The region's Active Representatives
increased 4%, and units sold were flat with the prior year.
Operating profit grew 44% versus the 2007 quarter, primarily due to
higher revenue as well as favorable foreign exchange rates. Latin
America's third-quarter operating margin was 19.4%. In the North
America region, third-quarter revenue was 3% lower (4% lower in
local currency) than the prior-year's level. Active Representatives
rose 1%. Units sold decreased 5% from prior-year levels. Sales of
Beauty products were flat year over year, while sales of Beyond
Beauty products declined 23%, reflecting, in large part, the
general retail environment of the region. Operating profit was 29%
lower than that of the 2007 quarter, primarily due to lower revenue
coupled with higher input costs. The region's operating margin was
5.1%. In Central & Eastern Europe, third-quarter revenue rose
17% (5% in local currency). The region's growth was driven by
Russia, where revenue increased 12%, and also Ukraine, where
revenue expanded 50%. The region's Active Representatives grew 5%.
Units sold increased 2%. Operating profit was 13% lower than the
prior year, as the region's revenue increase was offset by higher
RVP and advertising expense and the unfavorable impact of foreign
exchange on product costs. The region's third-quarter operating
margin was 15.5%. The Western Europe, Middle East & Africa
region achieved revenue growth of 8% (6% in local currency), due in
large part to continued growth in Turkey, where revenue increased
over 20%, and Italy, where revenue rose nearly 30%. U.K. revenue
grew 1%. Year over year, the region's Active Representatives rose
6%. Units sold decreased 5%. Operating profit was 73% higher versus
the 2007 quarter due to higher revenue. The region's third-quarter
operating margin was 5.8%. Asia-Pacific revenue increased 6% (2% in
local currency), with the Philippines contributing revenue growth
of 20%. The region's Active Representatives rose 1% year over year,
while units sold increased 3% compared with the prior year.
Operating profit was up 96% year over year, primarily as a result
of lower overhead expenses. The region's operating margin was
11.0%. Revenue in China grew 25% (13% in local currency), Active
Representatives were up 98%. Units sold were 5% lower. Reflecting
continued strategic investment, the region reported an operating
loss of $7 million versus a loss of $5 million in the 2007 period.
The region's third-quarter operating margin was (9.6)%. Outlook
Avon reiterated its strategy to invest in both its brand and
direct-selling channel to drive sustainable, profitable growth. As
a result, the company continues to expect revenue growth over the
long term to average mid-single digits, excluding the impact of
foreign exchange. The company has not experienced a measurable
impact on its business outside of North America from the current
economic and financial crisis. While the company considers the
consequences of possible deterioration in these economies and
remains watchful of its business trends in these markets, it
currently expects fourth-quarter 2008 local-currency revenue growth
rates in these markets similar to those of the third quarter. The
negative consumer environment in North America continues to weigh
on Avon's performance in that region, and the company expects that
trend to further deteriorate in the fourth quarter. Additionally,
recent significant movements in foreign-exchange rates, if
maintained at current levels, will negatively impact fourth-quarter
and full-year 2008 growth rates and operating margins. As a result,
the company now expects a full-year 2008 operating margin in the
range of 13%, compared with its previous expectation of an
operating margin approaching 2005's level of approximately 14%.
Avon believes that it will continue to generate strong operating
cash flow. Combined with global cash balances approaching $1
billion and a single-A credit rating, this should more than enable
the company to meet its financial needs. 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: 67076202). 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 an economic
downturn or recession in one or more particular regions; -- 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 effect of economic factors,
including inflation and fluctuations in interest rates and currency
exchange rates, and the potential effect of such fluctuations on
revenues, expenses and resulting margins; -- general economic and
business conditions in our markets, including social, economic and
political uncertainties in Latin America, China, Asia Pacific,
Central and Eastern Europe and the Middle East; -- any consequences
of the internal investigation of our China operations; --
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 Nine months ended Percent
September 30 Change September 30 Change ------------------ -------
----------------- ------- 2008 2007 2008 2007 -------- --------
-------- -------- Net sales $2,618.7 $2,326.1 13% $7,807.6 $6,795.8
15% Other revenue 26.0 23.0 74.9 67.4 -------- -------- --------
-------- Total revenue 2,644.7 2,349.1 13% 7,882.5 6,863.2 15% Cost
of sales(1) 975.0 889.0 2,892.1 2,642.6 Selling, general and
administrative expenses (1) 1,372.6 1,236.6 4,023.2 3,572.4
-------- -------- -------- -------- Operating profit 297.1 223.5
33% 967.2 648.2 49% -------- -------- -------- -------- Interest
expense 24.6 29.2 76.8 83.8 Interest income (10.1) (10.2) (27.9)
(32.8) Other expense (income), net 3.4 (3.2) 16.1 (1.4) --------
-------- -------- -------- Total other expenses 17.9 15.8 65.0 49.6
Income before taxes and minority interest 279.2 207.7 34% 902.2
598.6 51% Income taxes (2) 54.5 68.6 254.3 195.2 -------- --------
-------- -------- Income before minority interest 224.7 139.1 647.9
403.4 Minority interest (2.1) 0.0 (5.0) (1.6) -------- --------
-------- -------- Net income $222.6 $139.1 60% $642.9 $401.8 60%
======== ======== ======== ======== Earnings per share: Basic $.52
$.32 63% $1.51 $.92 64% ======== ======== ======== ======== Diluted
$.52 $.32 63% $1.49 $.92 62% ======== ======== ======== ========
Average shares outstanding: Basic 425.74 430.03 426.36 435.13
Diluted 429.75 433.03 430.14 438.38 (1) For the three and nine
months ended September 30, 2008, costs to implement restructuring
initiatives impacted cost of sales by $2.6, and $2.9, respectively,
and selling, general and administrative expenses by $11.8 and
$50.3, respectively. For the three and nine months ended September
30, 2007, costs to implement restructuring initiatives impacted
cost of sales by ($0.4) and $0.3, respectively, and selling,
general and administrative expenses by $27.6 and $57.1,
respectively. (2) For the three and nine months ended September 30,
2008, income taxes includes net favorable impacts of $38.0
resulting from an audit settlement, which was partially offset by
the establishment of a valuation allowance against deferred tax
assets relating to loss carryforwards. AVON PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions) Sep
30 Dec 31 2008 2007 -------- -------- Cash, including cash
equivalents $967.0 $963.4 Accounts receivable, net 704.4 795.0
Inventories 1,236.8 1,041.8 Prepaid expenses and other 898.1 715.2
-------- -------- Total current assets 3,806.3 3,515.4 Property,
plant and equipment, net 1,372.1 1,278.2 Other assets 950.2 922.6
-------- -------- Total assets 6,128.6 5,716.2 ======== ========
Debt maturing within one year 732.4 929.5 Accounts payable 728.8
800.3 Other current liabilities 1,186.7 1,323.6 -------- --------
Total current liabilities 2,647.9 3,053.4 Long-term debt 1,677.7
1,167.9 Other non-current liabilities 743.8 783.3 Total
shareholders' equity 1,059.2 711.6 -------- -------- Total
liabilities and shareholders' equity $6,128.6 $5,716.2 ========
======== AVON PRODUCTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions) Nine Months Ended September 30
------------------- 2008 2007 ------- ------- Cash Flows from
Operating Activities: Net income $642.9 $401.8 Depreciation and
amortization 143.0 126.9 Provision for doubtful accounts 149.1
113.9 Provision for obsolescence 54.2 152.6 Share-based
compensation 46.5 48.1 Deferred income taxes 8.7 (8.1) Other 33.1
27.4 Changes in assets and liabilities: Accounts receivable (63.8)
(122.5) Inventories (262.6) (426.4) Prepaid expenses and other
(183.5) (80.8) Accounts payable and accrued liabilities (178.8)
13.4 Income and other taxes (49.2) (61.4) Noncurrent assets and
liabilities (36.9) (122.0) ------- ------- Net cash provided by
operating activities 302.7 62.9 Cash Flows from Investing
Activities: Capital expenditures (238.3) (139.9) Disposal of assets
8.5 10.3 Other investing activities (33.8) (20.2) ------- -------
Net cash used by investing activities (263.6) (149.8) Cash Flows
from Financing Activities: Cash dividends (262.3) (244.4) Total
debt, net change 294.9 422.8 Repurchase of common stock (171.4)
(555.7) Proceeds from exercise of stock options, net of excess tax
benefits 93.1 64.8 ------- ------- Net cash used by financing
activities (45.7) (312.5) Effect of exchange rate changes on cash
and cash equivalents 10.2 41.0 ------- -------- Net increase
(decrease) in cash and cash equivalents $3.6 $(358.4) =======
======== AVON PRODUCTS, INC. SUPPLEMENTAL SCHEDULE (Unaudited) (In
millions) THREE MONTHS ENDED 9/30/08 ==========================
REGIONAL RESULTS ================ Total Revenue In Local Total
Curr- Operating Op. Active $ in Millions Revenue US$ ency Profit
US$ Margin Units Reps --------------- ----- ------------- -------
------ ------ % var. % var. % var. % var. % var. vs vs vs 2008 vs
vs 3Q07 3Q07 3Q07 percent 3Q07 3Q07 --------------- -----
------------- ------- ------ ------ Latin America $1,064.8 25% 13%
$207.1 44% 19.4% 0% 4% North America(1) 584.5 -3 -4 29.9 -29 5.1 -5
1 Central & Eastern Europe 382.4 17 5 59.3 -13 15.5 2 5 Western
Europe, Middle East & Africa 315.8 8 6 18.3 73 5.8 -5 6 Asia
Pacific 221.4 6 2 24.3 96 11.0 3 1 China 75.8 25 13 (7.3) -52 -9.6
-5 98 Total from Operations 2,644.7 13 6 331.6 22 12.5 -1 5 Global
Expenses - - - (34.5) 29 - - - Consolidated (1) $2,644.7 13% 6%
$297.1 33% 11.2% -1% 5% CATEGORY SALES (US$) ====================
Consolidated -------------------- % var. vs 3Q07
-------------------- Beauty (cosmetics/fragrances/skin
care/toiletries) $1,905.3 15% Beauty Plus (fashion
jewelry/watches/apparel/accessories) 474.4 10 Beyond Beauty (home
products/gift and decorative products) 239.0 1 -------- --------
Net Sales $2,618.7 13% Other Revenue 26.0 13 -------- --------
Total Revenue $2,644.7 13% NINE MONTHS ENDED 9/30/08
========================== REGIONAL RESULTS ================ Total
Revenue In Local Total Curr- Operating Op. Active $ in Millions
Revenue US$ ency Profit US$ Margin Units Reps --------------- -----
------------- ------- ------ ------ % var. % var. % var. % var. %
var. vs vs vs 2008 vs vs 9M07 9M07 9M07 percent 9M07 9M07
--------------- ----- ------------- ------- ------ ------ Latin
America $2,939.8 27% 15% $515.2 49% 17.5% 4% 7% North America (1)
1,811.4 -2 -3 169.0 5 9.3 -3 3 Central & Eastern Europe (2)
1,236.6 21 8 244.0 27 19.7 7 17 Western Europe, Middle East &
Africa 987.4 13 7 79.5 * 8.1 0 4 Asia Pacific 666.0 9 0 74.8 51
11.2 1 3 China 241.3 24 13 (1.6) 59 -0.7 7 75 Total from Operations
7,882.5 15 7 1,080.9 38 13.7 2 9 Global Expenses - - - (113.7) 16 -
- - Consolidated (1)(2) $7,882.5 15% 7% $967.2 49% 12.3% 2% 9%
CATEGORY SALES (US$) ==================== Consolidated
-------------------- % var. vs 9M07 -------------------- Beauty
(cosmetics/fragrances/skin care/toiletries) $5,646.0 17% Beauty
Plus (fashion jewelry/watches/apparel/accessories) 1,464.9 12
Beyond Beauty (home products/gift and decorative products) 696.7 6
-------- ------- Net Sales $7,807.6 15% Other Revenue 74.9 11
-------- ------- Total Revenue $7,882.5 15% * Calculation not
meaningful (1) North America Active Representative growth
benefitted 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 during the first
half of 2008 benefitted 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: Renee Johansen, or Anita Bialkowska, both
of Avon Products, Inc., +1-212-282-5320 Web Site:
http://www.avon.com/ http://www.avoncompany.com/
http://www.avoninvestor.com/
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