Avon 3Q Profit Rises 7% On Sales, Margin Gains; Views Missed

Avon Products Inc.'s (AVP) third-quarter earnings rose 7% on prior-year charges as the beauty-products company reported stronger sales and margins.

However, Chairman and Chief Executive Andrea Jung said lower-than-expected revenue in the latest quarter "added further pressure to operating margin."

The personal-care sector has seen a number of deals recently, with the U.K.'s Daily Mail newspaper earlier this month reporting talk that Avon may become a takeover target.

Avon, which has seen sales improve this year, has been making some acquisitions of its own to complement its core direct beauty-sales business, such as its March purchase of U.K. skincare-product maker Liz Earle Beauty and its planned acquisition of Silpada Designs, a closely held direct seller of sterling-silver jewelry.

Avon reported a profit of $166.7 million, or 38 cents a share, up from $156.2 million, or 36 cents a share, a year earlier. Excluding Venezuela impacts and restructuring costs, earnings fell to 41 cents from 42 cents.

Revenue increased 4% to $2.7 billion with about half the amount from acquisitions, and was up 6% excluding currency fluctuations.

Analysts polled by Thomson Reuters most recently forecast earnings of 47 cents on revenue of $2.69 billion.

Gross margin rose to 64.4% from 62.7%. But that was offset by advertising expenses jumping 36%, driven by increases in Brazil, Russia and the U.S.

Volume grew 1%, including 8% in the North America and 6% in Latin America, its largest market.

In China, where sales have been slumping in recent quarters, volume dropped 28%. Avon has identified China as its priority growth market and has been transitioning to a direct-selling model there from a hybrid model that also includes retail.

At Avon's beauty-sales business, by far its largest segment, global revenue improved 3%, and rose 5% on a constant-currency basis.

Shares closed Wednesday at $32.86 and were inactive premarket.

-By Tess Stynes, Dow Jones Newswires; 212-416-2481; [e-mail]