Avon 4Q Net Up 80% On 2007 Charges; Revenue, Volume Drop

   DOW JONES NEWSWIRES 
 

Avon Products Inc.'s (AVP) fourth-quarter net income rose 80% amid year-earlier restructuring charges as revenue fell on the stronger dollar and weaker volume.

Chairman and Chief Executive Andrea Jung said "it is prudent" to assume that negative foreign-exchange and economic pressures will continue "for the foreseeable future," leading Avon to expect that 2009 will be a "challenging year."

The largest direct seller of cosmetics has been restructuring its operations since late 2005, cutting overhead and boosting compensation for sellers. But it may not be able to keep pace with consumers who are cutting back on mascara and face creams amid job losses and gloomy economic news.

Higher-end beauty companies Estee Lauder Cos. (EL) and Elizabeth Arden Inc. (RDEN) recently set low expectations for their fourth-quarter results, which they will report Thursday. While Avon's direct-selling model may give it an advantage, the company has been raising prices at a time when buyers are looking to save.

Meanwhile, Avon reported net income of $232.4 million, or 54 cents a share, up from $128.9 million or 30cents a share, a year earlier. Restructuring costs were 1 cent and 34 cents, respectively.

Net sales fell 8.8% to $2.78 billion as units sold declined 3%.

Analysts polled by Thomson Reuters expected per-share earnings of 59 cents on revenue of $2.86 billion.

Operating margin rose to 13.3% from 7.3% on fluctuations in foreign-exchange rates as well as a stronger product mix and price hikes.

Beauty sales fell 7%, as the foreign-exchange impact offset growth in all categories, particularly fragrance and skin care.

North American earnings fell 14% as revenue dropped 11% and volume declined 6%. The company has been trying to boost overseas sales to offset weakening domestic results, though that may be hard to do as economic crisis continues to wallop all corners of the Earth.

Shares closed at $19.34 Monday and there was no premarket trading. The stock has lost half its value in the past four months.

-By Melissa Korn and Mike Barris, Dow Jones Newswires; 201-938-5400; [e-mail]

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