Avon Reports Second Quarter Earnings of $.49 Per Share, $.03 Per
Share Ahead of Earlier Guidance Sales and Units Grow Strongly at
13% and 15%, Respectively; Beauty Sales Advance 17% NEW YORK, July
28 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE:AVP) today
reported that earnings in the second quarter 2004 increased 36% to
$.49 per share, or $.03 per share ahead of earlier guidance. In the
second quarter 2003, Avon reported earnings of $.36 per share. The
company also raised its earnings expectation for the full-year 2004
to $1.72 per share, up from earlier guidance of $1.70 per share.
Avon said that exceptional strength in the company's international
operations added $.02 per share to second quarter earnings versus
earlier guidance. An additional $.01 per share upside resulted from
a one-time tax audit settlement originally forecasted for later in
the year. Sales in the quarter also advanced ahead of earlier
guidance to $1.84 billion, up 13%, versus $1.63 billion in the
year-ago period. Excluding the impact of foreign currency exchange,
sales rose 12%. Avon said that the sales growth was driven by a 17%
increase in sales of Beauty products, with all major categories
delivering double-digit gains. In addition, units and active
Representatives both rose to exceptional levels, up 15% and 11%,
respectively, with all geographic regions showing increases in both
measures. Operating profit in the quarter increased 16%, and
operating margin improved 40 basis points to 17.4%, including the
previously announced $6.2 million paid to settle a long-standing
lawsuit. Gross margin expanded 170 basis points to 64.1% due to
substantial cost-savings in all geographic regions resulting from
the company's Business Transformation initiatives. Net income in
the second quarter rose 35% to $232.3 million, compared with $171.5
million in last year's second quarter. Net income for the 2004
quarter included anticipated one-time benefits of $.03 per share
resulting from previously disclosed cash management and tax
strategies and $.01 per share from an adjustment in foreign tax
credits, as well as the timing impact of $.01 per share from the
tax audit settlement mentioned above. Net cash provided by
operations in the second quarter 2004 was $240 million, $86 million
ahead of last year's quarter. Avon said it remains on track for
achieving full-year cash flow from operations of approximately $800
million. Commenting on the quarter, Andrea Jung, Avon's chairman
and chief executive officer, said, "Avon's second quarter
performance again illustrates a very exciting top-line growth
story, with sales, units and active Representatives all growing at
near-record rates. We're especially pleased that Beauty sales grew
in the high teens, and have now grown faster than overall sales for
eight consecutive quarters, demonstrating the sustainability of our
strategies to drive consistent growth in our global Beauty
business," she said. "In addition, our international regions
performed above expectations, with Europe, Latin America and Asia
Pacific all generating double-digit gains in sales, operating
profit, units and active Representatives. While overall U.S. sales
were 3%, we're very encouraged by the continuing strength in Beauty
sales and solid growth in active Representatives, our most critical
strategic indicators." Ms. Jung added that the company is equally
pleased with the strength of its bottom-line performance, noting
that, "Avon's second quarter results also reflect the continuing
impact of Business Transformation, with all geographic regions
generating significant benefits from ongoing supply chain
initiatives." Second Quarter Regional Highlights Avon said that in
the U.S., its largest market, sales increased 3%, driven by 11%
growth in units and a 4% gain in the number of active
Representatives. Sales of Beauty products rose 6% - on top of the
12% gain in last year's second quarter - and sales of Beauty Plus
products advanced 4%. Sales in the Beyond Beauty category fell 11%
due to weaker-than-expected toy and gift sales. U.S. operating
profit increased in line with sales, as expected, while operating
margin declined by 30 basis points to 20.5%. The Europe region
delivered another quarter of continuing substantial growth as sales
advanced 28% in dollars and 20% in local currency terms. Units and
active Representatives increased 17% and 13%, respectively. The
markets of Central and Eastern Europe again posted outstanding
results, with sales and operating profit advancing significantly,
including Russia, Avon's fastest growing market, where sales grew
more than 80%. The U.K. followed its strong first quarter
performance with a second quarter sales increase in excess of 20%.
Operating profit in Europe increased 49%, and operating margin
expanded by 320 basis points to 22.9%. The Latin America region
also generated strong operating results in the quarter as sales
grew 10% in dollars and 15% in local currencies. Units and active
Representatives in the region increased 12% and 13%, respectively.
Brazil delivered mid-teens sales growth, supported by a 19% advance
in units. Venezuela, Chile and Argentina also recorded healthy
double-digit sales growth. Operating profit in Latin America rose
15% on top of a prior-year gain of approximately $7 million from
the sale of a Mexico City property. The region's operating margin
improved by 110 basis points to 25.9%. In Asia Pacific, sales grew
20% in dollars and 16% in local currencies, driven by a very
healthy 29% advance in units and 13% growth in active
Representatives. China, Avon's largest long-term growth
opportunity, continues to post dramatic growth, with sales
increasing more than 60% in the quarter. Operating profit in Asia
Pacific rose 33%, and operating margin expanded by 180 basis points
to 18.6%, fueled by broad-based strength across the region. Outlook
for Third Quarter and Full Year Avon said it expects third quarter
local currency sales growth to be in line with that of the second
quarter, with continuing strength in international regions, and
U.S. sales expected to grow between 3-4%. Foreign currency is
projected to have an approximate 1% negative impact on overall
third quarter sales growth. The company also said that growth in
sales of Beauty products should again outpace overall sales gains,
and units are expected to grow at a rate similar to that in the
second quarter. Third quarter operating profit is forecast to
approach a 20% growth rate, with operating margin expansion
expected in all regions. Third quarter earnings are projected to be
approximately $.34 per share, or 21% ahead of last year's period.
With its international operations exceeding expectations, Avon said
it raised its earnings forecast for the full-year 2004 to $1.72 per
share, $.02 per share ahead of earlier guidance, or 24% ahead of
2003's earnings of $1.39 per share. Avon anticipates a full-year
effective tax rate in the range of 31%. "We're pleased with the
continuing strength of our business fundamentals, and we're
confident that 2004 will be our fifth consecutive year of
exceptional operating performance. It will also be the second year
in a row in which Avon's earnings have increased over 20% as we
accelerate the transformation of the company," Ms. Jung said. 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 rest 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 months ended Six months
ended June 30 Percent June 30 Percent 2004 2003 Change 2004 2003
Change Net sales (1) $1,844.4 $1,632.0 13% $3,585.8 $3,092.3 16%
Other revenue 21.9 16.2 45.3 31.9 Total revenue 1,866.3 1,648.2 13%
3,631.1 3,124.2 16% Cost of sales (1) 669.0 619.7 1,330.1 1,193.7
Marketing, distribution and administrative expenses (1) 871.8 748.7
1,746.1 1,487.1 Operating profit 325.5 279.8 16% 554.9 443.4 25%
Interest expense 9.8 10.6 15.9 20.5 Interest income (3.9) (3.0)
(8.4) (5.5) Other expense, net (2) 4.1 9.8 7.3 11.6 Total other
expenses 10.0 17.4 14.8 26.6 Income before taxes and minority
interest 315.5 262.4 20% 540.1 416.8 30% Income taxes 79.4 88.1
153.3 142.1 Income before minority interest 236.1 174.3 386.8 274.7
Minority interest (3.8) (2.8) (6.4) (4.3) Net income $232.3 $171.5
35% $380.4 $270.4 41% Earnings per share: (3) Basic $.49 $.37 32%
$.81 $.58 40% Diluted (4) $.49 $.36 36% $.80 $.57 40% Average
shares outstanding: Basic 472.27 469.80 472.03 469.99 Diluted
478.37 488.58 477.60 488.11 Notes: (1) For the three and six months
ended June 30, 2003, and the six months ended June 30, 2004,
reclassifications were made based on changes to certain Brazilian
taxes (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 June 30, Other
expense (income), net includes foreign exchange losses (gains) of
$2.7 and $7.7 in 2004 and 2003, respectively. For the six months
ended June 30, Other expense (income), net includes foreign
exchange losses (gains) of $4.7 and $8.8 in 2004 and 2003,
respectively. (3) 2003 quarter and year-to-date Earnings Per Share
were restated to reflect the 2 for 1 stock-split that took place in
May 2004. (4) For purposes of calculating diluted earnings per
share for the three months ended June 30, 2003 after tax interest
expense of $2.6 applicable to convertible debt was added back to
net income. For the six months ended June 30, 2003 after tax
interest expense of $5.3 applicable to convertible debt was added
back to net income. AVON PRODUCTS, INC. CONDENSED CONSOLIDATED
BALANCE SHEETS (Unaudited) (In millions) June 30 December 31 2004
2003 Cash, including cash equivalents $641.9 $694.0 Accounts
receivable, net 595.2 599.8 Inventories 723.9 653.4 Prepaid
expenses and other 279.5 278.9 Total current assets 2,240.5 2,226.1
Property, plant and equipment, net 872.0 855.6 Other assets 522.2
480.6 Total assets $3,634.7 $3,562.3 Debt maturing within one year
$244.1 $244.1 Accounts payable 406.0 400.1 Other current
liabilities 874.6 943.5 Total current liabilities 1,524.7 1,587.7
Long-term debt 851.6 877.7 Other non-current liabilities 663.5
725.6 Total shareholders' equity 594.9 371.3 Total liabilities and
shareholders' equity $3,634.7 $3,562.3 AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Six
months ended June 30 2004 2003 Cash Flows from Operating
Activities: Net income $380.4 $270.4 Depreciation and amortization
64.3 60.4 Provision for doubtful accounts 67.3 57.2 Provision for
obsolescence 31.9 27.0 Deferred income taxes (21.4) 4.0 Other 0.5
11.0 Changes in assets and liabilities: Accounts receivable (70.4)
(23.1) Inventories (109.0) (76.0) Prepaid expenses and other 3.4
(11.5) Accounts payable and accrued liabilities 15.1 (104.2) Income
and other taxes (57.3) (55.8) Non-current assets and liabilities
(76.8) (44.8) Net cash provided by operating activities 228.0 114.6
Cash Flows from Investing Activities: Capital expenditures (81.2)
(63.0) Disposal of assets 4.8 11.7 Other investing activities
(48.1) (19.2) Net cash (used in) investing activities (124.5)
(70.5) Cash Flows from Financing Activities: Cash dividends (135.2)
(100.9) Total debt, net change (1.8) 242.3 Repurchase of common
stock (90.8) (92.8) Proceeds from exercise of stock options, net of
taxes 82.0 52.8 Other financing activities 1.4 - Net cash (used in)
provided by financing activities (144.4) 101.4 Effect of exchange
rate on cash (11.2) 8.5 Net (Decrease) Increase in Cash and
Equivalents $(52.1) $154.0 AVON PRODUCTS, INC. - SUPPLEMENTAL
SCHEDULE SECOND QUARTER 2004 - THREE MONTHS ENDED 6/30/04 REGIONAL
RESULTS Net Sales in Local Operating Active Net Sales US$ Currency
Profit US$ Op. Units Reps %var. %var. %var. Margin %var. %var. vs
vs vs 2004 vs vs 2Q03 2Q03 2Q03 percent 2Q03 2Q03 $ in Millions
North America $625.3 3% 3% $125.1 4% 19.5% 11% 2% US 545.8 3 3
114.8 3 20.5 11 4 International (1) 1,219.1 19 17 283.5 30 23.1 16
13 Latin America (1) 476.6 10 15 123.6 15 25.9 12 13 Europe 484.8
28 20 111.2 49 22.9 17 13 Pacific 257.7 20 16 48.7 33 18.6 29 13
Total from Operations (1) 1,844.4 13 12 408.6 20 21.9 15 11 Global
Expenses - - - (83.1) -40 - - - Consolidated (1) $1,844.4 13% 12%
$325.5 16% 17.4% 15% 11% CATEGORY SALES (US$) Consolidated US %
var. vs % var. vs 2Q03 2Q03 Beauty
(cosmetics/fragrances/toiletries) $1,296.8 17% $328.2 6% Beauty
Plus (fashion jewelry/watches/ apparel/accessories) 337.4 10 144.6
4 Beyond Beauty (home products/gift and decorative/candles) 210.2
-2 73.0 -11 $1,844.4 13% $545.8 3% SECOND QUARTER 2004 - SIX MONTHS
ENDED 6/30/04 REGIONAL RESULTS Net Sales in Local Operating Active
Net Sales US$ Currency Profit US$ Op. Units Reps %var. %var. %var.
Margin %var. %var. vs vs vs 2004 vs vs 1H03 1H03 1H03 percent 1H03
1H03 $ in Millions North America $1,232.7 5% 5% $221.1 9% 17.5% 7%
2% US 1,082.4 5 5 205.1 -2 18.4 7 3 International (1) 2,353.1 23 17
501.7 38 21.2 16 12 Latin America (1) 911.0 16 16 211.5 23 23.2 12
12 Europe 936.1 33 22 198.3 63 21.1 19 13 Pacific 506.0 19 13 91.9
30 17.8 22 11 Total from Operations (1) 3,585.8 16 13 722.8 27 19.9
13 10 Global Expenses - - - (167.9) -36 - - - Consolidated (1)
$3,585.5 16% 13% $554.9 25% 15.3% 13% 10% CATEGORY SALES (US$)
Consolidated US % var. vs % var. vs 1H03 1H03 Beauty
(cosmetics/fragrances/toiletries) $2,501.7 20% $634.1 7% Beauty
Plus (fashion jewelry/watches/ apparel/accessories) 646.1 10 282.3
6 Beyond Beauty (home products/gift and decorative/candles) 438.0 4
166.0 -4 $3,585.8 16% $1,082.4 5% (1) For the three and six months
ended June 30, 2003, and the six months ended June 30, 2004,
reclassifications were made based on changes to certain Brazilian
taxes (reclassified from operating expenses to a reduction of sales
and cost of sales). These reclassifications did not affect
operating profit. DATASOURCE: Avon Products, Inc. CONTACT: Media -
Victor Beaudet, +1-212-282-5344, or Investors - Renee Johansen, or
Rob Foresti, +1-212-282-5320, all for Avon Products, Inc. Web site:
http://www.avon.com/ http://www.avoninvestor.com/
http://www.avoncompany.com/ Company News On-Call:
http://www.prnewswire.com/comp/079575.html
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