Avon Products (NYSE:AVP)
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Avon Reports Record Fourth Quarter EPS of $.61, Up 11%,
Sales Increase 10% and Beauty Sales Climb 16%
NEW YORK, Feb. 1 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE:AVP)
today announced fourth-quarter 2004 EPS of $.61 per share, as expected, up 11%
from $.55 per share in the fourth quarter of 2003.
Avon said that dollar-denominated and local-currency sales in the fourth
quarter increased 10% and 7%, respectively, with sales of Beauty products
advancing a healthy 16%, well ahead of overall dollar-sales growth. Units and
active Representatives both rose 10% in the quarter.
Fourth-quarter operating profit grew 6%, as expected. Operating margin
contracted 70 basis points, to 17.8%, after an incremental $37 million in
consumer and strategic investments. Net income in the quarter rose 11% to
$288.8 million, compared with $261.3 million in the fourth quarter of 2003. The
quarter's results included $.03 per share negative impact from a non-cash
charge for the writedown of securities available to fund select benefit plan
obligations. This was offset by a $.02 benefit from a lower-than-anticipated
tax rate in the quarter of 25% and a $.01 favorable impact from the reversal of
previously recorded restructuring charges.
FULL-YEAR RESULTS
For full-year 2004, Avon reported that earnings per share increased 27% to
$1.77 per share, versus $1.39 per share in the prior year. Sales rose 13% in
2004, or 10% in local currencies, to a record $7.66 billion, versus $6.77
billion in 2003. Sales of Beauty products grew 17%, with increases in all
categories: skin care up 20%; fragrance up 13%; color cosmetics up 14%; and
personal care up 24%. Active Representatives rose 11% to 4.9 million and units
increased 13%. Net income in 2004 was $846.1 million, up 27% from $664.8
million in 2003.
Cash flow from operations reached a record $883 million for the year, well
surpassing the company's upwardly revised 2004 target of $850 million. In
recognition of the very healthy levels of cash flow that the company
consistently generates, Avon today is announcing an 18% increase in its
quarterly dividend and plans for a new $1 billion, five-year share repurchase
authorization. The dividend increase comes on top of a 33% increase in 2004,
for a cumulative 57% increase in the dividend over the two-year period.
In commenting on 2004 results, Andrea Jung, Avon's chairman and chief executive
officer, said, "We are extremely proud to have achieved double-digit topline
expansion in local currency for the fifth consecutive year and earnings per
share growth of 20% or more for the third consecutive year. Our 17% increase
in Beauty sales over last year's strong 15% increase, coupled with continued
double-digit gains in active Representatives, reflects the success of our
strategies to build the Avon brand and drive growth in our direct selling
channel.
"The consistent strength of our consolidated geographic portfolio, together
with the tremendous level of cash that our business now generates -- more than
double the level of four years ago -- should provide a very solid foundation
for unleashing further growth as we continue to move forward with Avon's
transformation," Ms. Jung concluded.
FOURTH-QUARTER REGIONAL HIGHLIGHTS
In the U.S., sales in the fourth quarter decreased 5% versus prior year, as
expected, in large part due to a 16% decline in the Beyond Beauty category,
primarily in toys and gifts, which are being repositioned in 2005. As
anticipated, sales of Beauty products were 1% lower versus the year-ago
quarter, active Representatives were 2% lower and units declined 5%. U.S.
operating profit in the quarter was $101 million, versus $133 million in the
year-ago quarter, due to the lower sales level, as well as $5.4 million of
costs associated with the previously announced Beyond Beauty category
repositioning and continued pressure on freight and material costs. U.S.
operating margin in the quarter was 15.3% versus 19.1% in the 2003 quarter.
In Europe, sales and operating profit rose 26% and 36%, respectively, based on
strong operating performance. Excluding the impact of currency translation,
sales increased 16%. The number of active Representatives grew 17%, and units
rose 20% on strong demand for a new personal care line, Senses, which launched
in the third quarter of 2004. Operating margin in the region expanded 210
basis points to a record 27.1% including an expected gain of $6.5 million from
the sale of a property in Western Europe. Central and Eastern Europe drove the
region's operating performance, with sales and operating profit up in the range
of 35% and 30%, respectively, led by Russia, where sales exceeded $400 million
for the full-year 2004. The markets of Central and Eastern Europe together
contributed in excess of $1 billion in annual revenue, one year ahead of
schedule.
In Latin America, sales and operating profit increased 12% and 11%,
respectively, primarily driven by strong performances in Brazil and Venezuela.
Sales in local currencies were up 14%, active Representatives increased 11% and
units rose 9%. The region's operating margin was 25.8% versus 26.1% in the
prior-year quarter, as an expected margin decline in Mexico was largely offset
by margin improvement in Venezuela.
In Asia Pacific, sales and operating profit both rose 9%. Sales in local
currencies were up 7%, units increased 17% and active Representatives grew 10%.
The region's operating margin was 18.6% in the quarter, flat with the year-ago
period, including greater than planned margin investment to drive further
penetration in China. China contributed significantly to the region's growth
in the quarter, with sales climbing almost 50% to reach nearly $225 million for
the full-year 2004, driving the region's revenue over $1 billion for the first
time.
2005 Outlook
As announced in December, Avon expects to deliver another year of standout
growth in 2005, reflecting ongoing strength in its international operations.
Local-currency total revenues are projected to grow 10% year over year, driven
by double-digit gains in units and active Representatives, with Beauty growth
outpacing overall revenue growth. Operating margin is forecast to expand 50-
80 basis points, and earnings per share are expected to be in the range of
$1.95-$2.00, with a 2005 effective tax rate of approximately 31%. Additionally,
cash flow from operations is projected to reach a record $1 billion this year.
For the first quarter, Avon said it expects local-currency revenue growth in
line with fourth quarter's growth. Dollar-based revenue growth should again
outpace local-currency growth, with a slightly less favorable foreign exchange
impact than in the fourth quarter. Operating profit is projected to grow at
least in line with dollar revenue growth. The company anticipates earnings to
be in the range of $.35 per share, versus $.31 per share in the first quarter
2004.
As the U.S. takes the previously announced steps to reposition its business,
U.S. first-quarter revenue is anticipated to decrease mid-single digits, and
operating profit is projected to be down mid-teens from prior year.
International regions are expected to deliver strong first-quarter
performances. Europe's revenue and operating profit are anticipated to be up
in the mid-20% and low-30% ranges, respectively, against very strong 2004
comparisons. Latin America is projected to grow revenue in the mid-to-high
single digits with operating profit growing ahead of revenue. The Asia Pacific
region is expected to post revenue growth of approximately 10% with mid-teens
operating-profit growth.
The company reiterates its full-year 2005 U.S. forecast for revenue to decline
slightly and operating profit to decrease in the mid-single digits. As the
category repositioning gains traction in the U.S. business, Avon remains
confident that the U.S. will resume revenue and operating-profit growth in
2006, with revenues expected to increase in the low-to-mid single digits and
operating profit projected to grow ahead of revenues.
For 2005, International operations are projected to post another year of growth
on growth, with revenue increasing mid-teens and operating profit expected to
grow over 20%, on particular strength in the company's leading growth markets
of Russia, China, Turkey and Brazil. Europe is expected to again be the
company's growth leader-with revenue up in the low-20% range and operating
profit growth in the mid-20% range. Latin America anticipates revenue growth
in the range of 10% and operating profit growth in the mid- teens. In 2005 Asia
Pacific's revenue growth is projected to be in the low teens, with operating
profit in the range of 25%.
Avon will conduct a conference call today at 9 a.m. New York time to discuss
the results for the quarter and full-year and its outlook for 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 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 Company's ability
to implement appropriate product mix and pricing strategies; the Company's
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 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 Sales Leadership
program globally and to increase Representative productivity; the Company's
ability to implement its enterprise resource planning project; the impact of
possible pension funding obligations and increased pension expense on the
Company's cash flow and results of operations; the impact of stock option
expense pursuant to FAS 123R; 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 Percent Year ended Percent
December 31 Change December 31 Change
2004 2003 2004 2003
Net sales (1) $2,285.7 $2,076.9 10% $7,656.2 $6,773.7 13%
Other revenue 24.8 23.3 91.6 71.4
Total revenue (1) 2,310.5 2,100.2 10% 7,747.8 6,845.1 13%
Cost of sales (1) 906.4 811.5 2,911.7 2,611.8
Marketing,
distribution and
administrative
expenses (1) 996.0 904.2 3,610.3 3,194.4
Special charge (2) (3.2) (3.9) (3.2) (3.9)
Operating profit 411.3 388.4 6% 1,229.0 1,042.8 18%
Interest expense 9.7 6.3 33.8 33.3
Interest income (6.7) (4.3) (20.6) (12.6)
Other expense, net (3) 18.9 6.0 28.3 28.6
Total other
expenses 21.9 8.0 41.5 49.3
Income before taxes
and minority
interest 389.4 380.4 2% 1,187.5 993.5 20%
Income taxes (4) 98.1 115.3 330.6 318.9
Income before
minority interest 291.3 265.1 856.9 674.6
Minority interest (2.5) (3.8) (10.8) (9.8)
Net income $288.8 $261.3 11% $846.1 $664.8 27%
Earnings per
share: (5)
Basic $.61 $.55 11% $1.79 $1.41 27%
Diluted (6) $.61 $.55 11% $1.77 $1.39 27%
Average shares
outstanding:
Basic 472.26 471.99 472.35 471.08
Diluted 477.25 477.28 477.96 483.13
Notes:
(1) For the three months and year ended December 31, 2003, and the year
ended December 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 and year ended December 31, 2004, the Company
recorded a benefit of $3.2 pretax ($2.6 after-tax; $0.01 diluted EPS)
from an adjustment to the Special charge recorded in the fourth
quarter of 2001 and third quarter of 2002. For the three months and
year ended December 31, 2003, the Company recorded a benefit of $3.9
pretax ($2.7 after-tax; $0.01 diluted EPS) from an adjustment to the
Special charge recorded in the fourth quarter of 2001 and third
quarter of 2002.
(3) For the three months ended December 31, Other expense, net includes
net foreign exchange losses of $3.6 in 2004 and 2003. For the year
ended December 31, Other expense, net includes net foreign exchange
losses of $9.5 and $15.9 in 2004 and 2003, respectively. The three
months and year ended December 31, 2004 also includes $13.7 of
expense for a write down of investments in equity securities. The
year ended December 31, 2003 also includes $6.4 of expense for the
write-off of deferred debt issue costs due to the redemption of
convertible notes.
(4) For the three months and year ended December 31, 2004, earnings per
share were impacted by a reduction in tax expense of $22.6 and $59.1,
respectively, due to international cash management and tax strategies
and foreign tax credits benefited. For the three months and year
ended December 31, 2003, earnings per share were also impacted by a
reduction in tax expense of $14.0 and $24.8, respectively, due to
favorable audit settlements and an IRS interest refund.
(5) 2003 quarter and year-to-date Earnings per share were restated to
reflect the two-for-one stock split that took place in May 2004.
(6) For purposes of calculating diluted earnings per share for the year
ended December 31, 2003, after tax interest expense of $5.7,
applicable to convertible debt was added back to net income.
AVON PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
December 31 December 31
2004 2003
Cash and cash equivalents $769.6 $694.0
Accounts receivable 599.1 553.2
Inventories 740.5 653.4
Prepaid expenses and other 397.2 325.5
Total current assets 2,506.4 2,226.1
Property, plant and equipment, net 1,014.8 855.6
Other assets 626.9 499.9
Total assets $4,148.1 $3,581.6
Debt maturing within one year $51.7 $244.1
Accounts payable 490.1 400.1
Other current liabilities 983.7 962.8
Total current liabilities 1,525.5 1,607.0
Long-term debt 866.3 877.7
Other non-current liabilities 806.1 725.6
Total shareholders' equity 950.2 371.3
Total liabilities and shareholders'
equity $4,148.1 $3,581.6
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Twelve Months Ended
December 31
2004 2003
Cash Flows from Operating Activities:
Net income $846.1 $664.8
Depreciation and amortization 133.7 123.5
Provision for doubtful accounts 140.0 124.8
Provision for obsolescence 65.5 55.6
Deferred income taxes (55.0) 22.7
Other 18.0 42.3
Changes in assets and liabilities:
Accounts receivable (160.4) (142.6)
Inventories (115.3) (66.4)
Prepaid expenses and other (60.0) (23.9)
Accounts payable and accrued liabilities 100.1 (48.6)
Income and other taxes 10.3 5.1
Noncurrent assets and liabilities (40.4) (12.0)
Net cash provided by operating activities 882.6 745.3
Cash Flows from Investing Activities:
Capital expenditures (250.1) (162.6)
Disposal of assets 19.6 14.1
Other investing activities (48.9) (29.9)
Net cash used by investing activities (279.4) (178.4)
Cash Flows from Financing Activities:
Cash dividends (269.7) (201.4)
Total debt, net change (195.8) (181.1)
Repurchase of common stock (224.2) (214.3)
Proceeds from exercise of stock
options, net of taxes 122.3 100.6
Other financing activities 0.4 0.7
Net cash used by financing activities (567.0) (495.5)
Effect of exchange rate changes on
cash and equivalents 39.4 15.8
Net increase in cash and equivalents $75.6 $87.2
AVON PRODUCTS, INC. - SUPPLEMENTAL SCHEDULE
FOURTH QUARTER 2004 - THREE MONTHS ENDED 12/31/04
REGIONAL RESULTS
Net Sales in
Local
$ in Millions Net Sales US$ Currency Operating Profit US$
% var. vs % var. vs % var. vs
4Q03 4Q03 4Q03
North America $756.8 -2% -3% $112.5 -20%
US 642.1 -5 -5 100.6 -24
International(1) 1,528.9 17 13 383.4 22
Latin America (1) 536.1 12 14 138.3 11
Europe 694.7 26 16 188.9 36
Asia Pacific (2) 298.1 9 7 56.2 9
Total from
Operations (1) (2) 2,285.7 10 7 495.9 9
Global Expenses (3) -- -- -- (84.6) -25
Consolidated
(1) (2) (3) $2,285.7 10% 7% $411.3 6%
$ in Millions Op. Margin Units Active Reps
2004 percent % var. vs % var. vs
4Q03 4Q03
North America 14.5% -2% -2%
US 15.3 -5 -2
International (1) 25.0 14 13
Latin America (1) 25.8 9 11
Europe 27.1 20 17
Asia Pacific (2) 18.6 17 10
Total from Operations (1) (2) 21.5 10 10
Global Expenses (3) -- -- --
Consolidated (1) (2) (3) 17.8% 10% 10%
CATEGORY SALES (US$)
Consolidated US
% var. vs % var. vs
4Q03 4Q03
Beauty (cosmetics/fragrances/
toiletries) $1,513.6 16% $312.4 -1%
Beauty Plus (fashion jewelry/
watches/apparel/
accessories) 396.4 7 169.9 -1
Beyond Beauty (home products/
gift and decorative
/candles) 375.7 -5 159.8 -16
$2,285.7 10% $642.1 -5%
FOURTH QUARTER 2004 - YEAR ENDED 12/31/04
REGIONAL RESULTS
Net Sales in
Local
$ in Millions Net Sales US$ Currency Operating Profit US$
% var. vs % var. vs % var. vs
FY03 FY03 FY03
North America $2,568.1 2% 1% $411.4 -3%
US 2,227.1 0 0 377.2 -10
International (1) 5,088.1 20 16 1,143.5 30
Latin America (1) 1,932.8 13 14 479.1 18
Europe 2,095.0 30 20 471.7 51
Asia Pacific (2) 1,060.3 15 11 192.7 23
Total from
Operations (1) (2) 7,656.2 13 10 1,554.9 19
Global Expenses (3) -- -- -- (325.9) -26
Consolidated
(1) (2) (3) $7,656.2 13% 10% $1,229.0 18%
$ in Millions Op. Margin Units Active Reps
2004 percent % var. vs % var. vs
FY03 FY03
North America 15.6% 3% 1%
US 16.5 2 1
International (1) 22.4 16 13
Latin America (1) 24.8 11 11
Europe 22.4 22 16
Asia Pacific (2) 17.9 21 13
Total from Operations (1) (2) 20.1 13 11
Global Expenses (3) -- -- --
Consolidated (1) (2) (3) 15.9% 13% 11%
CATEGORY SALES (US$)
Consolidated US
% var. vs % var. vs
FY03 FY03
Beauty (cosmetics/fragrances/
toiletries) $5,245.4 17% $1,222.6 3%
Beauty Plus (fashion jewelry/
watches/apparel/
accessories) 1,359.6 8 583.8 2
Beyond Beauty (home products/
gift and decorative
/candles) 1,051.2 0 420.7 -9
$7,656.2 13% $2,227.1 0%
(1) For the three months and year ended December 31, 2003, and the year
ended December 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 for the three months and year ended December 31, 2004
by 7 points and 5 points, respectively. This change positively
impacted Active Representative growth for Consolidated Avon for the
three months and year ended December 31, 2004 by 1 point in each
period.
(3) For the three months and year ended December 31, 2004, the Company
recorded a benefit of $3.2 pretax ($2.6 after-tax; $0.01 diluted EPS)
from an adjustment to the Special charge recorded in the fourth
quarter of 2001 and third quarter of 2002. For the three months and
year ended December 31, 2003, the Company recorded a benefit of $3.9
pretax ($2.7 after-tax; $0.01 diluted EPS) from an adjustment to the
Special charge recorded in the fourth quarter of 2001 and third
quarter of 2002.
DATASOURCE: Avon Products, Inc.
CONTACT: Media, Victor Beaudet, +1-212-282-5344, or Sharon Samuel,
+1-212-282-5322, or Investors, Renee Johansen and Rob Foresti, both at
+1-212-282-5320, all of 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