Avon Products (NYSE:AVP)
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Avon Reports Third Quarter Earnings of $.37 Per Share, Up 32%,
$.03 Per Share Ahead of Earlier Guidance
Third Quarter Sales Increase 11%; Operating Margin Advances 150 Basis Points
NEW YORK, Oct. 29 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE:AVP)
today reported that earnings in the third quarter 2004 increased 32% to $.37
per share, $.03 per share ahead of earlier guidance due to
higher-than-anticipated operating profit. In the third quarter 2003, Avon
reported earnings of $.28 per share.
Avon said that the $.03 upside to third quarter earnings per share came
primarily from operations, with stronger-than-expected performance in the
company's international regions -- particularly Europe and Latin America - and
with the U.S. performing in line with earlier guidance.
The company also raised its outlook for full-year 2004 to $1.75-$1.77 per
share, at least 26% above prior year, and up from earlier guidance of $1.72 per
share. The improved outlook reflects the third quarter's overachievement, as
well as potential for a lower effective fourth quarter tax rate of 29-30% due
to increased benefits realized from the company's previously announced tax and
cash management strategies.
Sales in the third quarter grew 11% to $1.78 billion, up from $1.60 billion in
the year-ago period. Excluding the impact of foreign currency exchange, sales
rose 10%. Units and active Representatives increased 15% and 11%,
respectively, and sales of Beauty products rose 15%, outpacing overall growth.
Operating profit in the quarter increased an exceptional 25%, exceeding earlier
expectations, and operating margin improved 150 basis points versus the
prior-year quarter.
The company's third quarter effective tax rate was 30.7%, in line with earlier
guidance. Net income in the quarter increased 33% to $176.9 million, compared
with $133.1 million in last year's third quarter. Net cash provided by
operations in the third quarter 2004 was $139.7 million, $29.3 million ahead of
the prior-year quarter.
Commenting on the company's third quarter performance, Andrea Jung, Avon's
chairman and chief executive officer said, "We are extremely pleased with the
continuing strength of our global portfolio which has enabled us to deliver
another quarter of outstanding results, despite sluggish sales in the U.S.
Europe, Latin America and Asia Pacific all delivered double-digit growth in
local-currency sales, units and dollar operating profit. Additionally, each of
these regions achieved at least 200 basis points of operating margin expansion.
The overall top and bottom line strength across these three key geographies
contributed to the higher-than-anticipated performance in the third quarter."
Third Quarter Regional Highlights
Avon said that sales in the U.S declined 1% versus a 7% gain in the third
quarter of 2003, reflecting weak consumer response to color cosmetics
promotions in advance of a late September category re-launch, and
underperformance in children's apparel and toys. Additionally, several
hurricanes occurring late in the quarter are estimated to have negatively
impacted sales and operating profit growth by one point and two points,
respectively. The storms also had an approximate one-point negative impact on
active Representative growth, which was flat in the quarter in part due to
weaker consumer activity. Units in the quarter increased 1%. Sales of Beauty
and Beauty Plus products were flat, and sales in the Beyond Beauty category
declined 6%. U.S. operating profit declined 9% due to the sales decline, as
well as higher freight and materials costs, which contributed to an operating
margin decrease of 140 basis points.
The Latin America region had third quarter sales growth of 8% in dollars and
13% in local currencies reflecting broad-based strength across the region, and
in particular Venezuela and Brazil. Units in the region increased 12% and
active Representatives were up 11%. Mexico and Brazil, Avon's second and third
largest markets, each had a healthy gain in local-currency sales of 10% and 8%,
respectively. Operating profit in the region exceeded expectations, advancing
18% in the third quarter and operating margin improved by 230 basis points to
26.6%.
In Europe, third quarter sales grew at an accelerated rate, advancing 33% in
dollars and 24% in local currency, exceeding earlier expectations. Units and
active Representatives increased 33% and 21%, respectively. The markets of
Central and Eastern Europe delivered an exceptionally strong overall
performance, with sales in Russia growing over 80%, or over 70% on a local-
currency basis, in the quarter. Sales in the U.K. increased more than 20%,
with local-currency sales up almost 10%, due to highly focused consumer
promotions and field sales incentive programs, including the launch of the
updated Avon Color line and its flagship product, My Lip Miracle. Operating
profit in Europe increased 60% in the third quarter, and operating margin
expanded by 310 basis points to 18.1%.
Asia Pacific generated robust operating performance as sales increased 14% in
dollars and 12% in local currencies. Units grew 22% and active Representatives
grew 14% benefiting from an increased number of sales campaigns in the
Philippines that resulted in more frequent Representative ordering. China
continued its standout performance with sales growing 37% in the quarter. The
markets of Southeast Asia were also strong performers with sales growth of 14%,
and operating profit growth of nearly 60% following a 2003 Malaysian field
reorganization. Operating profit for the region as a whole rose 29%, and
operating margin expanded by 200 basis points to 17.1%.
Outlook for Fourth Quarter and Full-Year 2004
Looking ahead to the fourth quarter, Avon said that it expects double-digit
sales growth in both local currencies and dollars, in line with the third
quarter. Growth in Beauty sales should again outpace overall sales growth by
at least two points, and units and active Representatives should each increase
by double digits. Operating profit is expected to grow in line with sales,
even after an incremental $30 million in consumer and strategic investments
including doubling the advertising spend to sustain high growth in Russia,
China, Brazil and the U.K. Earnings per share in the quarter are expected to
be $.58-$.60. Avon had earnings per share of $.55 in the prior-year period,
which included a $.04 per share favorable impact from a tax settlement and
reversal of previously recorded restructuring charges.
In the U.S., fourth quarter sales are forecast to decline approximately 3% in a
weaker than expected consumer environment, reflecting a mid-teens decrease in
the Beyond Beauty category, which is projected to have as much as a five-point
unfavorable impact. Active Representatives are forecast to grow 1% and sales
of Beauty products are expected to be flat with the prior year. U.S. operating
profit is expected to be in the range of $110 million in the quarter, versus
$133 million in the year-ago period, due primarily to the sales decline and, to
a lesser degree, continuing pressure on freight and material costs.
Stronger operating profit in international regions is expected to fully offset
the U.S. shortfall. Latin America is projected to grow sales and operating
profit in the high-single digits and mid-teens, respectively. Europe's sales
and operating profit should increase in the range of 25% and 35%, respectively.
The Asia Pacific region is forecast to grow sales and operating profit in the
mid-single digits and mid-teens range, respectively.
Commenting on the full-year, Ms. Jung said, "We are pleased to raise our
full-year earnings expectation to $1.75 per share, and as high as $1.77 per
share based on the increased probability for certain benefits from our
previously announced tax and cash management strategies. In addition to the
stronger earnings, we also anticipate that full-year cash flow from operations
should exceed our targeted $800 million, compared with $745 million in the
prior-year period.
"We are extremely pleased that the exceptional strength of our global
geographic portfolio and the flexibility it provides will enable us to deliver
another year of standout performance despite a difficult U.S. consumer
environment and challenges in the U.S. Beyond Beauty segment. Going forward,
we intend to fully exit certain Beyond Beauty categories and significantly
restructure others as we restore the U.S. business to healthy growth.
"We are very proud that 2004 is shaping up to be the third consecutive year in
which earnings will grow at least 20%. Looking ahead, we see another strong
year in 2005, and again expect to achieve our long-term annual targets of
double-digit local-currency sales growth and at least 10% earnings per share
growth as the transformation of Avon continues to take hold around the world."
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 fourth quarter 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 Nine
months ended Percent months ended Percent
September 30 Change September 30 Change
2004 2003 2004 2003
Net sales (1) $1,784.7 $1,604.5 11% $5,370.5 $4,696.8 14%
Other revenue 21.5 16.2 66.8 48.1
Total revenue (1) 1,806.2 1,620.7 11% 5,437.3 4,744.9 15%
Cost of sales (1) 675.2 606.6 2,005.3 1,800.3
Marketing,
distribution and
administrative
expenses (1) 868.2 803.1 2,614.3 2,290.2
Operating profit 262.8 211.0 25% 817.7 654.4 25%
Interest expense 8.2 6.5 24.1 27.0
Interest income (5.5) (2.8) (13.9) (8.3)
Other expense, net (2) 2.1 11.0 9.4 22.6
Total other
expenses 4.8 14.7 19.6 41.3
Income before taxes
and minority interest 258.0 196.3 31% 798.1 613.1 30%
Income taxes (3) 79.2 61.5 232.5 203.6
Income before minority
interest 178.8 134.8 565.6 409.5
Minority interest (1.9) (1.7) (8.3) (6.0)
Net income $176.9 $133.1 33% $557.3 $403.5 38%
Earnings per share:(4)
Basic $.37 $.28 32% $1.18 $.86 37%
Diluted (5) $.37 $.28 32% $1.17 $.84 39%
Average shares outstanding:
Basic 473.08 472.30 472.39 470.77
Diluted 479.36 479.22 478.20 485.11
Notes:
(1) For the three and nine months ended September 30, 2003, and the nine
months ended September 30, 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 September 30, Other expense, net includes
net foreign exchange losses of $1.2 and $3.5 in 2004 and 2003,
respectively. For the nine months ended September 30, Other expense,
net includes net foreign exchange losses of $5.9 and $12.3 in 2004
and 2003, respectively. The three and nine months ended September 30,
2003 also include $6.4 of expense for the write-off of deferred debt
issue costs due to the redemption of convertible notes.
(3) For the three and nine months ended September 30, 2004, Income taxes
were impacted by a decline in the tax rate resulting from a reduction
in tax expense of $8.7 and $37.4, respectively, due to cash
management and tax strategies, favorable audit settlements, and
amended returns as well as tax and interest refunds. For the three
and nine months ended September 30, 2003, Income taxes were impacted
by a decline in the tax rate resulting from a reduction in tax
expense of $6.0 and $10.8, respectively, due to a favorable audit
settlement and an IRS interest refund.
(4) 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.
(5) For purposes of calculating diluted earnings per share for the three
and nine months ended September 30, 2003, after tax interest expense
of $0.4 and $5.7, respectively, applicable to convertible debt was
added back to net income.
AVON PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
September 30 December 31
2004 2003
Cash and cash equivalents $607.4 $694.0
Accounts receivable 641.8 599.8
Inventories 825.9 653.4
Prepaid expenses and other 306.2 278.9
Total current assets 2,381.3 2,226.1
Property, plant and equipment, net 930.5 855.6
Other assets 523.3 480.6
Total assets $3,835.1 $3,562.3
Debt maturing within one year $233.8 $244.1
Accounts payable 440.9 400.1
Other current liabilities 931.1 943.5
Total current liabilities 1,605.8 1,587.7
Long-term debt 865.3 877.7
Other non-current liabilities 655.0 725.6
Total shareholders' equity 709.0 371.3
Total liabilities and shareholders' equity $3,835.1 $3,562.3
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Nine Months Ended
September 30
2004 2003
Cash Flows from Operating Activities:
Net income $557.3 $403.5
Depreciation and amortization 96.4 91.7
Provision for doubtful accounts 101.0 88.1
Provision for obsolescence 44.3 40.4
Deferred income taxes (39.9) 1.1
Other (3.3) 11.0
Changes in assets and liabilities:
Accounts receivable (144.5) (98.6)
Inventories (214.6) (156.6)
Prepaid expenses and other (18.1) (49.6)
Accounts payable and accrued liabilities 103.6 (30.5)
Income and other taxes (55.4) (45.3)
Noncurrent assets and liabilities (59.1) (30.2)
Net cash provided by operating activities 367.7 225.0
Cash Flows from Investing Activities:
Capital expenditures (162.4) (102.9)
Disposal of assets 6.9 13.3
Other investing activities (48.2) (29.9)
Net cash (used in) investing activities (203.7) (119.5)
Cash Flows from Financing Activities:
Cash dividends (202.5) (150.9)
Total debt, net change (12.1) (165.9)
Repurchase of common stock (143.6) (95.6)
Proceeds from exercise of stock
options, net of taxes 109.4 78.5
Other financing activities (0.2) 1.3
Net cash (used in) financing activities (249.0) (332.6)
Effect of exchange rate changes on cash
and equivalents (1.6) 4.9
Net (decrease) in cash and equivalents $(86.6) $(222.2)
AVON PRODUCTS, INC. - SUPPLEMENTAL SCHEDULE
THIRD QUARTER 2004 - THREE MONTHS ENDED 9/30/04
REGIONAL RESULTS
Net
Sales in
$ in Millions Local
Net Sales US$ Currency Operating Profit US$
% var. % var. % var.
vs 3Q03 vs 3Q03 vs 3Q03
North America $578.6 0% 0% $77.8 -5%
US 502.6 -1 -1 71.6 -9
International(1) 1,206.1 18 16 258.3 31
Latin America(1) 485.7 8 13 129.3 18
Europe 464.2 33 24 84.5 60
Asia Pacific(2) 256.2 14 12 44.5 29
Total from Operations(1)(2) 1,784.7 11 10 336.1 20
Global Expenses - - - (73.3) -8
Consolidated(1)(2) $1,784.7 11% 10% $262.8 25%
$ in Millions Op. Margin Units Active Reps
% var. vs % var. vs
2004 percent 3Q03 3Q03
North America 13.1% 3% 1%
US 13.9 1 0
International (1) 21.3 19 14
Latin America (1) 26.6 12 11
Europe 18.1 33 21
Asia Pacific (2) 17.1 22 14
Total from Operations (1)(2) 18.6 15 11
Global Expenses - - -
Consolidated (1)(2) 14.5% 15% 11%
CATEGORY SALES (US$)
Consolidated
% var.
vs 3Q03
Beauty(cosmetics/fragrances/toiletries) $1,230.9 15%
Beauty Plus (fashion jewelry/watches/apparel/accessories) 318.9 7
Beyond Beauty (home products/gift and decorative/candles) 234.9 -1
$1,784.7 11%
US
% var.
vs 3Q03
Beauty(cosmetics/fragrances/toiletries) $276.1 0%
Beauty Plus (fashion jewelry/watches/apparel/accessories) 131.6 0
Beyond Beauty (home products/gift and decorative/candles) 94.9 -6
$502.6 -1%
THIRD QUARTER 2004 - NINE MONTHS ENDED 9/30/04
REGIONAL RESULTS
Net
Sales in
Local
$ in Millions Currency
Net Sales US$ 9M03 Operating Profit US$
% var. % var. % var.
vs 9M03 vs 9M03 vs 9M03
North America $1,811.3 3% 3% $298.9 5%
US 1,585.0 3 3 276.7 -4
International (1) 3,559.2 21 17 760.0 35
Latin America (1) 1,396.7 13 15 340.8 21
Europe 1,400.3 33 22 282.8 62
Asia Pacific (2) 762.2 17 13 136.4 30
Total from Operations (1) (2) 5,370.5 14 12 1,058.9 25
Global Expenses - - - (241.2) -26
Consolidated (1) (2) $5,370.5 14% 12% $817.7 25%
$ in Millions Op. Margin Units Active Reps
% var. % var.
2004 percent vs 9M03 vs 9M03
North America 16.1% 6% 2%
US 17.0 5 2
International (1) 21.2 17 13
Latin America (1) 24.4 12 11
Europe 20.1 23 15
Asia Pacific (2) 17.6 22 14
Total from Operations (1) (2) 19.5 14 11
Global Expenses - - -
Consolidated (1) (2) 15.0% 14% 11%
CATEGORY SALES (US$)
Consolidated
% var.
vs 9M03
Beauty(cosmetics/fragrances/toiletries) $3,732.7 18%
Beauty Plus (fashion jewelry/watches/apparel/accessories) 963.1 9
Beyond Beauty (home products/gift and decorative/candles) 674.7 3
$5,370.5 14%
US
% var.
vs 9M03
Beauty(cosmetics/fragrances/toiletries) $910.2 5%
Beauty Plus (fashion jewelry/watches/apparel/accessories) 413.9 4
Beyond Beauty (home products/gift and decorative/candles) 260.9 -5
$1,585.0 3%
(1) For the three and nine months ended September 30, 2003, and the nine
months ended September 30, 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
third quarter of 2004, resulting in additional opportunities to
order. This change positively impacted Active Representative growth
in Asia Pacific for the three and nine months ended September 30,
2004 by 8 points and 4 points, respectively. This change positively
impacted Active Representative growth for Consolidated Avon for the
three and nine months ended September 30, 2004 by 1 point in each
period.
DATASOURCE: Avon Products, Inc.
CONTACT: Media - Victor Beaudet, +1-212-282-5344, Investors - Renee
Johansen, or Rob Foresti, +1-212-282-5320, all of Avon Products, Inc.
Web site: http://www.avon.com/
http://www.avoninvestor.com/
Company News On-Call: http://www.prnewswire.com/comp/079575.html