Avon 4Q Net Falls 15% On Foreign-Exchange Impacts, Lower Margins

   DOW JONES NEWSWIRES 

Avon Products Inc.'s (AVP) fourth-quarter earnings fell 15% as currency fluctuations weighed on revenue growth and higher product costs hurt margins.

The results missed analysts' estimates, sending shares down 3.5% at $28.33 in premarket trading. Shares of Avon, a direct seller of beauty products, are down about 17% since October when third-quarter results also fell short of Wall Street expectations.

Chairman and Chief Executive Andrea Jung said that as 2010 was ending the company "continued to experience disappointing sales results which were negatively impacted by service disruptions in Brazil and weak performance in Russia." Avon is "aggressively addressing execution challenges" that damped its performance in the second half of last year, she added.

Avon is among the many U.S. companies that have been relying on growth abroad to offset recent softness in North America, though competition from Procter & Gamble Co. (PG) and other household-product companies is heating up. Avon has identified China as a priority growth market and also has been making acquisitions that complement its direct beauty business.

Avon reported a profit of $229.5 million, or 53 cents a share, down from $269.4 million, or 62 cents a share, a year earlier. Excluding restructuring-related costs, earnings from continuing operations fell to 59 cents from 68 cents a share.

Revenue increased 1.2% to $3.18 billion, but excluding currency fluctuations was up 5%. Acquisitions contributed about 3 percentage points of growth.

Analysts polled by Thomson Reuters most recently forecast earnings of 67 cents a share on revenue of $3.28 billion.

Gross margin fell to 61.8% from 62.7% on higher product costs and adverse product mix. Volume declined 2%.

In Latin America, its largest business, sales excluding currency impacts rose 11% as profit declined 19% on weaker margins and higher labor and distribution costs. In North America, revenue was flat excluding currency impacts though earnings improved by 19% on stronger margins and lower advertising expenses.

On a local-currency basis, beauty sales grew 2%, including increases of 9% in fragrance sales, 1% in color cosmetics, 6% in personal-care sales, though skin-care sales declined 10%.

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