Avon Reports 16% Increase in First-Quarter Earnings to $.36 Per
Share - Exceeding Expectations Revenues Advance 7%; Operating
Profit Up 14% NEW YORK, May 2 /PRNewswire-FirstCall/ -- Avon
Products, Inc. (NYSE:AVP) today reported earnings for the first
quarter of 2005 of $.36 per share, up 16% from last year's
first-quarter earnings of $.31 per share and $.01 ahead of
expectations due to strong operating profit growth. Avon also
raised its previous full-year 2005 earnings outlook to $2.12 --
$2.17 per share from $1.95 -- $2.00 per share, reflecting a
second-quarter benefit of approximately $80 million, or about $.17
per share, relating to prior years' tax-audit settlements. Avon
said that in the first quarter of 2005, revenue grew 7% -- on top
of a 20% gain in last year's first quarter -- to $1.88 billion.
Local-currency revenue rose 4%, with units up 3% and active
Representatives up 9%. Sales of Beauty products were 8% higher,
with solid advances in every category. Operating profit increased
14% in the quarter. Operating margin improved 90-basis points to
13.9%, and gross margin expanded 60-basis points to 62.9%. Net
income in the quarter was $172.0 million, compared with $148.1
million in the year-ago period. First-Quarter 2005 Regional
Highlights In the U.S., as expected, revenue and operating profit
in the first quarter of 2005 decreased 6% and 15%, respectively,
versus the first quarter of 2004. Beauty sales declined 10%
reflecting the challenge of anniversarying a 32% increase in skin
care during the prior-year period, as well as the timing of product
innovation. Beauty Plus sales increased 7% and Beyond Beauty sales
declined 12% as expected, in line with the planned mix shift
between these two categories as part of the repositioning strategy
for this market. Units and active Representatives declined 9% and
1%, respectively. Operating margin was 14.8%, or 150-basis points
below the prior-year quarter. In Europe, first-quarter revenue and
operating profit increased 17% and 26%, respectively, on top of the
38% and 84% respective gains from a year ago. Local-currency
revenue in the first quarter of 2005 grew 10%, driven by growth in
units and active Representatives of 6% and 13%, respectively.
Operating margin in the region advanced to 20.7%, up 150-basis
points year over year even after more than doubling advertising and
investing 80-basis points of margin to launch the company's ERP
initiative in the region. Topline growth in Europe in the first
quarter was impacted by the U.K., where revenues were 3% lower
compared with the year-ago period as the U.K. anniversaried the
highly successful launch of Anew Clinical Line and Wrinkle
Corrector. Revenues in Central and Eastern Europe increased 27% in
the quarter, with Russia up 24% on top of extraordinary 89% growth
in the prior-year quarter. In Latin America, first-quarter revenue
grew 10% in dollars and 8% in local currency as continued strong
growth in Brazil and Venezuela more than offset softer sales in
Mexico. Units rose 5%, and active Representatives were up 10%.
Operating profit increased 12%, and operating margin was 20.6%, up
40-basis points year over year. The Asia Pacific region posted
first-quarter revenue growth of 10% in dollars and 8% in local
currency, driven by gains in units and active Representatives of
16% and 12%, respectively. Operating profit rose 20% and operating
margin increased to 18.5%, up 150-basis points year over year.
China, Avon's largest long-term growth opportunity, was again the
biggest contributor to the region's growth, with revenue up nearly
40%. In April 2005, Avon China was approved as the first company to
conduct a direct-selling test in that market. Second-Quarter
Outlook Avon said that revenue growth in the second-quarter 2005
should accelerate ahead of the first quarter, with
dollar-denominated and local-currency growth expected to be in the
ranges of 10% and 6%, respectively. Operating profit is forecast to
increase approximately in line with revenue growth, including an
acceleration of consumer investments in emerging markets as well as
funding for the China direct-selling test. Avon said that it
expects U.S. results in the second quarter to be in line with those
of the first quarter as it continues to reposition the U.S.
business for improved performance in the second half of this year
and a return to profitable growth in 2006. With regard to the
second-quarter outlook for each international region, the company
said that Europe's revenue is projected to grow in the high teens,
with operating profit increasing slightly ahead of revenue. Latin
America's revenue and operating profit should each increase in the
mid-teens. Asia Pacific's revenue is expected to be up
double-digits while operating profit should grow in the high-single
digits. In addition, Avon said that second-quarter earnings are
forecast to be in the range of $.66 per share, reflecting a
non-cash benefit of approximately $80 million, or about $.17 per
share, relating to prior years' tax-audit settlements. This
compares to earnings of $.49 per share in last year's second
quarter, which included a tax benefit of $.05 per share. The
company said that additional tax settlements are possible during
2005, which could result in further benefits. Commenting on the
year, Andrea Jung, Avon's chairman and chief executive officer
said, "We're pleased with Avon's performance in the first quarter,
especially given the very challenging year-over-year comparisons.
Looking ahead, we're projecting that local-currency revenue will
accelerate, as increased innovation in our second-half product
pipeline drives stronger Beauty sales. Continuing strong results in
our international regions are offsetting U.S. performance during
this period of repositioning, with our emerging markets once again
expected to deliver another full year of stand-out revenue growth,"
she said. Avon will conduct a conference call this morning at 9:00
A.M. New York time to discuss the results for the quarter and its
outlook for the second quarter and full-year 2005. 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 $7.7 billion in annual
revenues. Avon markets to women around the world through 4.9
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 report 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," "plan," "believe,"
"expect," "anticipate," "intend," "planned," "potential" and
similar 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: general economic and business
conditions in our markets, including social, economic and political
uncertainties in Latin America, Asia Pacific and Central and
Eastern Europe and the Middle East; our ability to implement our
business, cash management and tax strategies and our Business
Transformation initiatives; our ability to achieve anticipated cost
savings and our profitability and growth targets, particularly in
our largest markets; our ability to implement appropriate product
mix and pricing strategies; the impact of changes in consumer
spending patterns and preferences, particularly given the global
nature of our business, our ability to replace lost sales
attributable to the repositioning of the U.S. Beyond Beauty
business; the impact of substantial currency fluctuations on the
results of our foreign operations and the cost of sourcing foreign
products and the success of our foreign currency hedging and risk
management strategies; our ability to implement our Sales
Leadership program globally, to increase Representative
productivity and recruit Representatives; our ability to implement
our enterprise resource planning project; the impact of possible
pension funding obligations and increased pension expense on our
cash flow and results of operations; the impact of stock option
expense pursuant to Statement of Financial Accounting Standards No.
123(R); the effect of legal, regulatory and tax proceedings, as
well as restrictions imposed on us, our operations or our
Representatives by foreign governments; our ability to successfully
identify new business opportunities; our access to financing; and
our ability to attract and retain key personnel and executives.
Additional information identifying such factors is contained in our
Annual Report on Form 10-K for the year ended December 31, 2004,
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
(In millions, except per share data) Three months ended Percent
March 31 Change 2005 2004 Net sales (1) $1,860.9 $1,741.4 7% Other
revenue 20.2 23.4 Total revenue (1) 1,881.1 1,764.8 7% Cost of
sales (1)(2) 698.2 666.2 Marketing, distribution and administrative
expenses (1)(2) 922.4 869.2 Operating profit 260.5 229.4 14%
Interest expense 10.1 6.1 Interest income (7.8) (4.5) Other
expense, net (3) 4.5 3.2 Total other expenses 6.8 4.8 Income before
taxes and minority interest 253.7 224.6 13% Income taxes 79.8 73.9
Income before minority interest 173.9 150.7 Minority interest (1.9)
(2.6) Net income $172.0 $148.1 16% Earnings per share: Basic $.36
$.31 16% Diluted $.36 $.31 16% Average shares outstanding: (4)
Basic 471.95 471.56 Diluted 477.00 476.61 Notes: (1) For the three
months ended March 31, 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 March 31, 2004, certain U.S.
expenses were reclassified from operating expenses to cost of
sales. These reclassifications did not affect operating profit. (3)
For the three months ended March 31, 2005 and 2004, Other expense,
net includes foreign exchange losses of $1.9 and $2.0,
respectively. (4) 2004 shares were restated to reflect the
two-for-one stock split that took place in May 2004. AVON PRODUCTS,
INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In
millions) March 31 December 31 2005 2004 Cash, including cash
equivalents $792.0 $769.6 Accounts receivable, net 582.2 599.1
Inventories 815.3 740.5 Prepaid expenses and other 413.4 397.2
Total current assets 2,602.9 2,506.4 Property, plant and equipment,
net 1,000.0 1,014.8 Other assets 608.9 626.9 Total assets 4,211.8
4,148.1 Debt maturing within one year 229.4 51.7 Accounts payable
461.8 490.1 Other current liabilities 946.6 983.7 Total current
liabilities 1,637.8 1,525.5 Long-term debt 850.7 866.3 Other
non-current liabilities 730.3 806.1 Total shareholders' equity
993.0 950.2 Total liabilities and shareholders' equity $4,211.8
$4,148.1 AVON PRODUCTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions) Three months ended March 31 2005 2004
Cash Flows from Operating Activities: Net income $172.0 $148.1
Depreciation and amortization 31.1 32.8 Provision for doubtful
accounts 28.3 35.5 Provision for obsolescence 14.1 18.8 Deferred
income taxes 1.4 (5.7) Other 6.9 3.9 Changes in assets and
liabilities: Accounts receivable (17.0) (29.4) Inventories (101.8)
(63.8) Prepaid expenses and other (21.5) (14.6) Accounts payable
and accrued liabilities (51.1) (42.1) Income and other taxes (2.4)
(51.0) Non-current assets and liabilities (68.8) (44.3) Net cash
used by operating activities (8.8) (11.8) Cash Flows from Investing
Activities: Capital expenditures (32.5) (30.4) Disposal of assets
2.8 2.6 Other investing activities (0.2) 7.9 Net cash used by
investing activities (29.9) (19.9) Cash Flows from Financing
Activities: Cash dividends (78.9) (66.9) Total debt, net change
176.9 (9.7) Repurchase of common stock (44.9) (59.7) Proceeds from
exercise of stock options, net of taxes 31.7 45.4 Other financing
activities (0.3) (0.2) Net cash provided (used) by financing
activities 84.5 (91.1) Effect of exchange rate changes on cash and
equivalents (23.4) (9.2) Net increase (decrease) in cash and
equivalents $22.4 $(132.0) AVON PRODUCTS, INC. - SUPPLEMENTAL
SCHEDULE FIRST QUARTER 2005 - THREE MONTHS ENDED 3/31/05 REGIONAL
RESULTS Total Revenue in Local Operating $ in Millions Total
Revenue US$ Currency Profit US$ % var. vs % var. vs % var. vs 1Q04
1Q04 1Q04 North America $594.7 -5% -6% $82.3 -14% US 516.5 -6 -6
76.7 -15 International (1)(2) 1,286.4 13 9 259.8 19 Latin America
(1) 477.2 10 8 98.3 12 Europe 530.0 17 10 109.8 26 Asia Pacific (2)
279.2 10 8 51.7 20 Total from Operations (1)(2) 1,881.1 7 4 342.1 9
Global Expenses - - - (81.6) 4 Consolidated (1)(2) $1,881.1 7% 4%
$260.5 14% Op. Margin Units Active Reps 2005 % var. vs % var. vs
percent 1Q04 1Q04 North America 13.8% -8% -1% US 14.8 -9 -1
International (1)(2) 20.2 7 11 Latin America (1) 20.6 5 10 Europe
20.7 6 13 Asia Pacific (2) 18.5 16 12 Total from Operations (1)(2)
18.2 3 9 Global Expenses - - - Consolidated (1)(2) 13.9% 3% 9%
CATEGORY SALES (US$) Consolidated % var. vs 1Q04 Beauty
(cosmetics/fragrances/skin care/toiletries) $1,300.6 8% Beauty Plus
(fashion jewelry/watches/apparel/accessories) 334.8 7 Beyond Beauty
(home products/gift and decorative/candles) 225.5 0 Net Sales
$1,860.9 7% Other Revenue 20.2 -14 Total Revenue $1,881.1 7% (1)
For the three months ended March 31, 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 second quarter of 2004, resulting in additional
opportunities to order. This change positively impacted Active
Representative growth in Asia Pacific and Consolidated Avon for the
three months ended March 31, 2005 by 9 points and 1 point,
respectively. DATASOURCE: Avon Products, Inc. CONTACT: Media:
Victor Beaudet, +1-212-282-5344, or Sharon Samuel, +1-212-282-5322,
or Investors: Rob Foresti or Renee Johansen, +1-212-282-5320, all
of Avon Products, Inc. Web site: http://www.avon.com/
http://www.avoninvestor.com/ http://www.avoncompany.com/ Company
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