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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

Company Sees Full-Year Earnings of $1.75-$1.77 Per Share, Up From Earlier Guidance Of $1.72 Per Share

PRNewswire-FirstCall
NEW YORK
Oct 29, 2004

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.

SOURCE: 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

 
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