UPDATE: Avon 4Q Net Up 80% On 2007 Charges; Revenue, Volume Drop
04 February 2009 - 5:03AM
Dow Jones News
Avon Products Inc.'s (AVP) fourth-quarter net income rose 80%
amid year-earlier restructuring charges as revenue fell on the
stronger dollar and weaker volume.
The company's earnings missed Wall Street's expectations. Still,
the direct seller's stock rose recently more than 8% to $21.00 as
some investors may have been bracing themselves for an even sharper
hit to results.
"Given that the stock has been punished quite severely in recent
days, the stock's performance today seems to be all about relief -
relief that Latin America hasn't slowed for Avon- as yet, relief
that cost savings are roughly on plan, relief that there is no
update about the Foreign Corrupt Practices Act investigation," said
Sanford Bernstein analyst Ali Dibadj.
Last year Avon announced that it had been investigating its
China operations in connection with compliance with the Foreign
Corrupt Practices Act, which bans bribing foreign officials.
On Tuesday, Chairman and Chief Executive Andrea Jung said "it is
prudent" to assume that negative foreign-exchange and economic
pressures will continue "for the foreseeable future," leading Avon
to expect that 2009 will be a "challenging year."
The largest direct seller of cosmetics has been restructuring
its operations since late 2005, cutting overhead and boosting
compensation for sellers. But it may not be able to keep pace with
consumers who are cutting back on mascara and face creams amid job
losses and gloomy economic news.
Higher-end beauty companies Estee Lauder Cos. (EL) and Elizabeth
Arden Inc. (RDEN) recently set low expectations for their
fourth-quarter results, which they will report Thursday. While
Avon's direct-selling model may give it an advantage, the company
has been raising prices at a time when buyers are looking to
save.
Meanwhile, Avon reported net income of $232.4 million, or 54
cents a share, up from $128.9 million or 30 cents a share, a year
earlier. Restructuring costs were 1 cent and 34 cents,
respectively.
Net sales fell 8.8% to $2.78 billion as units sold declined
3%.
Analysts polled by Thomson Reuters expected per-share earnings
of 59 cents on revenue of $2.86 billion.
Operating margin rose to 13.3% from 7.3% on fluctuations in
foreign-exchange rates as well as a stronger product mix and price
hikes.
Beauty sales fell 7%, as the foreign-exchange impact offset
growth in all categories, particularly fragrance and skin care.
North American earnings fell 14% as revenue dropped 11% and
volume declined 6%. The company has been trying to boost overseas
sales to offset weakening domestic results, though that may be hard
to do as economic crisis continues to wallop all corners of the
Earth.
-By Melissa Korn and Mike Barris, Dow Jones Newswires;
201-938-5400; melissa.korn@dowjones.com
-Anjali Cordeiro contribute to this report.
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