Revenue of $2.6 Billion 4% Lower Year over Year Due to Foreign
Exchange Pressure; Up 7% on Local-Currency Basis, Driven by Strong
Beauty Sales Active Representatives Up 10%; Units Up 5%; Beauty
Units Up 6% Third-Quarter Earnings per Share of $.36, Including
Costs of $.06 for Restructuring Long-term Outlook: Continued
Mid-Single-Digit Local-Currency Revenue Growth; Operating Margin
Improving to Mid-Teens upon Completion of 2005 and 2009
Restructuring Programs NEW YORK, Oct. 29 /PRNewswire-FirstCall/ --
Avon Products, Inc. (NYSE: AVP) today reported third-quarter 2009
total revenue of $2.6 billion, 4% lower than that of 2008's third
quarter, but up 7% on a local-currency basis as foreign exchange
pressured growth by 11 percentage points. Beauty sales in the third
quarter of 2009 were 3% lower versus the prior-year period, but
increased 8% on a local-currency basis. Active Representatives grew
10%, with growth in all regions. Units overall rose 5% versus the
prior-year quarter and Beauty units increased 6%. Avon's 8%
local-currency growth in Beauty sales included gains in all
categories: fragrance, color cosmetics, skin care and personal care
grew 9%, 17%, 1%, and 7%, respectively. On a reported basis, these
growth rates were -4%, +4%, -8% and -4%, respectively.
Third-quarter 2009 gross margin of 62.6% was 50 basis points below
that of the prior-year quarter. Strong manufacturing productivity
gains, benefits from the company's Strategic Sourcing Initiative,
and strategic price increases offset most of 140 basis points of
unfavorable transaction-exchange impact on 2009 gross margin.
Selling, general and administrative expense in the quarter rose as
a percent of revenue by 50 basis points versus 2008's third
quarter. This was due primarily to higher year-over-year costs to
implement restructuring initiatives as well as foreign exchange
transaction impact. Advertising for the quarter was $84 million,
down $22 million from last year's period. The company was able to
maintain its advertising presence at a level similar to a year ago,
benefiting from improved buying productivity and general softness
in media prices. Avon invested an incremental $7 million in the
quarter on initiatives to further improve its Representative Value
Proposition. As announced earlier this month, third-quarter 2009
expenses included costs associated with the company's 2005 and 2009
restructuring programs totaling $34 million pretax, or $.06 per
share after tax. This compared with costs of $14 million, or $.02
per share, related to the company's 2005 restructuring program in
the prior-year period. Third-quarter 2009 operating profit was $259
million compared with $297 million in the prior-year quarter. The
company's third-quarter 2009 operating margin was 10.1%, compared
with 11.2% in the third quarter of 2008. Costs to implement
restructuring initiatives lowered 2009's operating margin 130 basis
points and lowered 2008's operating margin by 50 basis points.
Additionally, unfavorable foreign exchange lowered operating margin
by an estimated 270 basis points (approximately 180 of that from
foreign-exchange transaction and approximately 90 from
foreign-exchange translation) year over year. Third quarter 2009's
effective tax rate of 32.0% compared with third quarter 2008's rate
of 19.5%, which included one-time favorable tax adjustments. These
adjustments benefited the prior-year period by $.09 per share. Net
income in the third quarter 2009 was $156 million, or $.36 per
share, compared with $223 million, or $.52 per share, in the
year-ago quarter. At quarter end, Avon's total debt had increased
$272 million from the year-end level, to $2.8 billion, and cash had
increased $189 million, to $1.3 billion. Net cash provided by
operating activities was $247 million through nine months of 2009
compared with $303 million of cash provided by operating activities
in the same period of 2008, with the change due primarily to lower
net income offset partially by the timing of payments related to
the company's restructuring programs. Third-Quarter Regional
Results Latin America's third-quarter 2009 revenue was 5% higher
year over year, or up 18% on a local-currency basis. Local-currency
revenue increased 22% in Brazil, 7% in Mexico and 24% in Venezuela,
which, on a reported basis, were +7%, -18% and +24%, respectively.
The region's Active Representatives grew 13%, and units sold were
up 10%. Operating profit was 7% lower (but increased 4% in local
currency) due primarily to the impact of unfavorable foreign
exchange. Latin America's third-quarter operating margin was 17.3%.
Third-quarter revenue in North America declined 8%, with no
material impact from foreign exchange. Active Representatives were
up 4% versus the prior-year quarter. Units sold were 5% lower
versus the prior year. The region's revenue continued to be
pressured by lower consumer spending and a continued double-digit
decline in non-Beauty (Fashion and Home categories). North
America's third-quarter operating profit decreased 19% (-15% in
local currency) versus the 2008 quarter as $11 million in costs to
implement restructuring initiatives offset profit growth that had
been achieved through significant cost control. The region's
operating margin was 4.5%. In Central & Eastern Europe,
third-quarter revenue was 18% lower year over year but up 7% on a
local-currency basis. Local-currency revenue increased 18% in
Russia (-9% on a reported basis). The region's Active
Representatives grew 8% in the quarter, and units sold were flat
versus the prior-year's quarter. Operating profit decreased 21%
(but increased 10% in local currency) versus the 2008 quarter,
primarily due to the impact of unfavorable foreign exchange. The
region's operating margin was 14.9%. Western Europe, Middle East
& Africa's third-quarter revenue decreased 6% versus the
prior-year quarter but rose 7% on a local-currency basis.
Local-currency revenue increased 2% in the U.K. and 10% in Turkey,
which, on a reported basis, were -13% and -12%, respectively. The
region's Active Representatives grew 9% year over year, and units
sold increased 22%. Operating profit decreased 36% (-9% in local
currency) versus the 2008 quarter, primarily due to the impact of
unfavorable foreign exchange, but also costs to implement
restructuring initiatives. The region's operating margin was 4.0%.
Asia-Pacific's third-quarter revenue increased 1% year over year
(+2% on a local-currency basis). On a local-currency basis, 16%
growth in the Philippines (+9% on a reported basis) offset
continued weakness in Japan. The region's Active Representatives
were 6% higher, and units sold were up 4% over the prior-year
period. Operating profit decreased 5% (but increased 3% in local
currency) versus the 2008 quarter, due primarily to the impact of
unfavorable foreign exchange. The region's operating margin was
10.4%. Third-quarter revenue in China decreased 11% year over year,
with no impact from foreign exchange. Units sold decreased 19%.
Revenue from Beauty Boutiques decreased over 40% in the quarter,
reflecting the continued complex evolution towards direct selling
in this hybrid business model, which is unique to this market.
Revenue growth from direct selling mirrored Active Representative
growth at 7% in the third quarter. The timing of incentive programs
and product launches dampened direct-selling revenue during the
quarter. Representative recruiting remained consistently strong in
the quarter and Avon said that it remains confident in the
potential of direct selling in this market. China had operating
profit of $3 million in the quarter compared with a loss of $7
million in the 2008 quarter, primarily due to focus on cost
controls. The region's operating margin was 3.7%. Commenting on the
company's overall performance in the third quarter, Andrea Jung,
Chairman and CEO, remarked, "We are pleased with the third
quarter's 7% local-currency-revenue growth, particularly in this
economic environment. Our broad-based strength is proof that our
strategies to focus on representative recruiting and Avon's "Smart
Value" products are working. Active Representatives and Beauty
revenue both grew strongly as we expanded Representative coverage
and Beauty market share across our portfolio." Investor Meeting
Preview Avon will discuss the quarter's results and future
prospects for its business at an investor meeting today in New York
City. The company will share long-term strategies and plans that
support an outlook for continued mid-single-digit revenue growth
(excluding foreign exchange impact) and operating margin improving
to mid-teen levels upon completion by 2013 of the company's 2005
and 2009 restructuring programs. That meeting will be webcast in
its entirety beginning at 8:30 A.M., Eastern Time. The webcast,
including presentation materials, can be accessed at
http://www.avoninvestor.com/ and will be archived on that site for
one year. 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 5.8 million independent Avon Sales
Representatives. Avon's product line includes beauty products, as
well as fashion and home products, 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 gross and 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 any 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, a recession globally or in
one or more of our geographic regions, such as North America, or
sudden disruption in business conditions, and the ability of our
broad-based geographic portfolio to withstand such economic
downturn, recession or conditions; -- 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 economic factors, including
inflation and fluctuations in interest rates and currency exchange
rates, as well as the likely designation of Venezuela as a highly
inflationary economy, and the potential effect of such factors on
our business, results of operations and financial condition; -- our
ability to successfully transition our business in China in
connection with the resumption of direct selling in that market in
2006, 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 political, legal and regulatory risks
imposed on us, our operations or our Representatives, including
foreign exchange or other restrictions, changes in direct selling
regulations or interpretations thereof, as well as reviews and
investigations by government regulators that have occurred or may
occur from time to time, including, for example, local regulatory
scrutiny in China; -- general economic and business conditions in
our markets, including social, economic and political uncertainties
in the international markets in our portfolio; -- any consequences
of internal investigations and compliance reviews that we conduct
from time to time, including the ongoing investigation of our China
operations and the review of our practices relating to the Foreign
Corrupt Practices Act and related U.S. and foreign laws in
additional countries, as well as any business disruption resulting
from such investigations, reviews or related measures we may
implement from time to time; -- 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 enhance the Representative
experience and increase Representative productivity through
investments in the direct-selling channel, 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 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, 2008, 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 Nine months ended Percent ended Percent
September 30 Change September 30 Change ------------------ -------
------------------ ------- 2009 2008 2009 2008 -------- --------
-------- -------- Net sales $2,527.0 $2,618.7 -4% $7,130.4 $7,807.6
-9% Other revenue 24.3 26.0 71.0 74.9 -------- -------- --------
-------- Total revenue 2,551.3 2,644.7 -4% 7,201.4 7,882.5 -9% Cost
of sales 954.8 975.0 2,700.3 2,892.1 Selling, general and
administrative expenses 1,338.0 1,372.6 3,891.3 4,023.2 --------
-------- -------- -------- Operating profit 258.5 297.1 -13% 609.8
967.2 -37% -------- -------- -------- -------- Interest expense
26.1 24.6 78.8 76.8 Interest income (3.2) (10.1) (15.2) (27.9)
Other expense, net 3.9 3.4 7.9 16.1 -------- -------- --------
-------- Total other expenses 26.8 17.9 71.5 65.0 Income before
taxes 231.7 279.2 -17% 538.3 902.2 -40% Income taxes (74.1) (54.5)
(178.6) (254.3) -------- -------- -------- -------- Net income
157.6 224.7 359.7 647.9 Net income attributable to noncontrolling
interest (1.4) (2.1) (3.3) (5.0) -------- -------- --------
-------- Net income attributable to Avon $156.2 $222.6 -30% $356.4
$642.9 -45% ======== ======== ======== ======== Earnings per share:
Basic $.36 $.52 -31% $.83 $1.50 -45% ======== ======== ========
======== Diluted $.36 $.52 -31% $.83 $1.49 -44% ======== ========
======== ======== AVON PRODUCTS, INC. CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions) September 30 December 31 2009 2008
------------ ----------- Assets Current Assets Cash and cash
equivalents $1,293.4 $1,104.7 Accounts receivable, net 736.2 687.8
Inventories 1,192.7 1,007.9 Prepaid expenses and other 974.5 756.5
------------ ----------- Total current assets 4,196.8 3,556.9
------------ ----------- Property, plant and equipment, at cost
2,604.2 2,439.9 Less accumulated depreciation (1,153.3) (1,096.0)
------------ ----------- 1,450.9 1,343.9 Other assets 1,087.8
1,173.2 ------------ ----------- Total assets $6,735.5 $6,074.0
------------ ----------- Liabilities and Shareholders' Equity
Current Liabilities Debt maturing within one year $431.2 $1,031.4
Accounts payable 721.3 724.3 Accrued compensation 273.8 234.4 Other
accrued liabilities 642.3 581.9 Sales and taxes other than income
245.1 212.2 Income taxes 70.1 128.0 ------------ ----------- Total
current liabilities 2,383.8 2,912.2 ------------ -----------
Long-term debt 2,328.0 1,456.2 Employee benefit plans 599.5 665.4
Long-term income taxes 166.1 168.9 Other liabilities 163.0 159.0
------------ ----------- Total liabilities $5,640.4 $5,361.7
------------ ----------- Shareholders' Equity Common stock $185.9
$185.6 Additional paid-in-capital 1,918.5 1,874.1 Retained earnings
4,204.9 4,118.9 Accumulated other comprehensive loss (711.1)
(965.9) Treasury stock, at cost (4,544.8) (4,537.8) ------------
----------- Total Avon shareholders' equity 1,053.4 674.9
------------ ----------- Noncontrolling Interest 41.7 37.4
------------ ----------- Total shareholders' equity $1,095.1 $712.3
------------ ----------- Total liabilities and shareholders' equity
$6,735.5 $6,074.0 ------------ ----------- AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions)
Nine Months Ended September 30 ----------------------- 2009 2008
-------- -------- Cash Flows from Operating Activities Net income
$359.7 $647.9 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and Amortization
131.4 143.0 Provision for doubtful accounts 159.6 149.1 Provision
for obsolescence 72.2 54.2 Share-based compensation 43.1 46.5
Deferred income taxes (36.3) 8.7 Other 44.5 28.1 Changes in assets
and liabilities: Accounts receivable (157.0) (63.8) Inventories
(207.8) (262.6) Prepaid expenses and other (92.8) (183.5) Accounts
payable and accrued liabilities 29.8 (178.8) Income and other taxes
(82.2) (49.2) Noncurrent assets and liabilities (17.1) (36.9)
-------- -------- Net cash provided by operating activities 247.1
302.7 -------- -------- Cash Flows from Investing Activities
Capital expenditures (171.8) (238.3) Disposal of assets 10.2 8.5
Purchases of investments (0.7) (60.5) Proceeds from sale of
investments 61.8 26.6 Other investing activities 5.7 0.1 --------
-------- Net cash used by investing activities (94.8) (263.6)
-------- -------- Cash Flows from Financing Activities Cash
dividends (273.1) (262.3) Debt, net (maturities of three months or
less) (499.1) (189.8) Proceeds from debt 948.9 547.1 Repayment of
debt (155.2) (62.4) Proceeds from exercise of stock options 3.8
80.8 Excess tax benefit realized from share-based compensation
(2.1) 12.3 Repurchase of common stock (7.6) (171.4) --------
-------- Net cash provided (used) by financing activities 15.6
(45.7) -------- -------- Effect of exchange rate changes on cash
and equivalents 20.8 10.2 Net increase in cash and equivalents
188.7 3.6 Cash and equivalents at beginning of year $1,104.7 $963.4
Cash and equivalents at end of period $1,293.4 $967.0 AVON
PRODUCTS, INC. SUPPLEMENTAL SCHEDULE (Unaudited) (In millions)
THREE MONTHS ENDED 9/30/09 ========================== REGIONAL
RESULTS ================ Total $ in Revenue Millions Total in Local
Operating Op. Active Revenue US$ Currency Profit US$ Margin Units
Reps ------------- ----------- ----------- ------- ------ ------ %
var. % var. % var. % var. % var. vs vs vs 2009 vs vs 3Q08 3Q08 3Q08
percent 3Q08 3Q08 ------------- ----------- ----------- -------
------ ------ Latin America $1,113.9 5% 18% $192.4 -7% 17.3% 10%
13% North America(1) 535.2 -8 -8 24.1 -19 4.5 -5 4 Central &
Eastern Europe 314.1 -18 7 46.7 -21 14.9 0 8 Western Europe, Middle
East & Africa(2) 298.2 -6 7 11.8 -36 4.0 22 9 Asia Pacific
222.6 1 2 23.2 -5 10.4 4 6 China 67.3 -11 -11 2.5 * 3.7 -19 7 Total
from operations 2,551.3 -4 7 300.7 -9 11.8 5 10 Global and other -
- - (42.2) -22 - - - Total $2,551.3 -4% 7% $258.5 -13% 10.1% 5% 10%
CATEGORY SALES (US$) ==================== Consolidated
------------------ % var. vs 3Q08 ------------------ Beauty (color
cosmetics/fragrances/skin care/ personal care) $1,841.8 -3% Fashion
(fashion jewelry/watches/apparel/ footwear/accessories) 425.2 -3
Home (gift & decorative products/housewares/ entertainment
& leisure/kids/nutrition) 260.0 -5 -------- ---- Net sales
$2,527.0 -4% Other revenue 24.3 -7 -------- ---- Total revenue
$2,551.3 -4% NINE MONTHS ENDED 9/30/09 =========================
REGIONAL RESULTS ================ Total $ in Revenue Millions Total
in Local Operating Op. Active Revenue US$ Currency Profit US$
Margin Units Reps ------------- ----------- ----------- -------
------ ------ % var. % var. % var. % var. % var. vs vs vs 2009 vs
vs 9M08 9M08 9M08 percent 9M08 9M08 ------------- -----------
----------- ------- ------ ------ Latin America $2,885.0 -2% 16%
$414.4 -20% 14.4% 8% 11% North America(1) 1,631.5 -10 -9 71.7 -58
4.4 -6 3 Central & Eastern Europe 960.0 -22 4 114.4 -53 11.9 -2
8 Western Europe, Middle East & Africa(2) 841.2 -15 3 30.8 -61
3.7 4 7 Asia Pacific 631.0 -5 1 49.9 -33 7.9 2 7 China 252.7 5 2
23.1 * 9.1 4 33 Total from operations 7,201.4 -9 5 704.3 -35 9.8 2
9 Global and other - - - (94.5) 17 - - - Total $7,201.4 -9% 5%
$609.8 -37% 8.5% 2% 9% CATEGORY SALES (US$) ====================
Consolidated ------------------- % var. vs 9M08 -------------------
Beauty (color cosmetics/fragrances/skin care/personal care)
$5,163.4 -9% Fashion (fashion jewelry/watches/apparel/
footwear/accessories) 1,243.2 -10 Home (gift & decorative
products/housewares/ entertainment & leisure/kids/nutrition)
723.8 -8 -------- ---- Net sales $7,130.4 -9% Other revenue 71.0 -5
-------- ---- Total revenue $7,201.4 -9% * Calculation not
meaningful (1) North America Active Representative growth benefited
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) Western Europe, Middle
East & Africa Active Representative growth benefited from the
acquisition of a distributor in Saudi Arabia during the second
quarter of 2009. DATASOURCE: Avon Products, Inc. CONTACT: Renee
Johansen or Yana Friedman, +1-212-282-5320, both for Avon Products,
Inc. Web Site: http://www.avon.com/
Copyright
