Corporate Press Releases

Avon to Benefit From Cash Management and Tax Strategies

Effective Tax Rate Expected to Decline to 31%

Company Raises Earnings Target $.05 per Share for Full-Year 2004

Jun 8, 2004

As a result of implementing new long-term cash management and tax strategies, Avon Products, Inc. (NYSE: AVP) today raised its earnings outlook for the second quarter and full-year 2004 to reflect a significant reduction in the company's effective tax rate.

These cash management and tax strategies are a further extension of the company's successful Business Transformation efforts and reflect a decision to permanently invest a larger share of foreign earnings offshore, enabled by a new international holding company structure. When the strategies are fully implemented some time in 2005, Avon expects its recurring effective tax rate to be reduced from 35% to approximately 31%.

Reflecting these changes, the company raised its second quarter and full- year 2004 earnings outlooks. For the second quarter, Avon now expects to earn $.46 per share, 28% above the year-ago period, and $.03 per share higher than earlier guidance. Full-year earnings are now projected to be $1.70 per share, up 22% from the year-ago period, and $.05 higher than earlier expectations.

Robert J. Corti, Avon's chief financial officer, said, "With the continuing success of our global operations--including consistently strong, sustainable cash flow in the U.S. -- we no longer need to repatriate as much of our foreign earnings to meet our domestic cash needs, including funding increased dividends, share repurchase programs and debt repayment. We expect these programs to remain unchanged. Going forward, we are able to retain a larger portion of the funds generated overseas for investment abroad, thus lowering our U.S. deferred income taxes and benefiting the company's overall earnings and shareholder value."

Continuing Strength in Business Operations

Avon also said that its global business continues to perform strongly, as expected, with second quarter sales growth projected to be up 12% in dollars and 11% in local currencies versus prior year, driven by an expected 14% increase in Beauty sales. Units are anticipated to grow 12% in the quarter, following a similar volume gain in the first quarter.

Operating profit in the second quarter should increase 14%, even after absorbing $6.2 million of pretax expense from the unexpected settlement of a long-standing lawsuit associated with a restoration claim brought by Solow Building Co., landlord of the company's former headquarters.

Regional Highlights

In terms of regional operating performance, U.S. second quarter sales are tracking in the mid-single digits, with an anticipated 4% sales increase driven by gains of 6% and 3% in Beauty sales and the number of active Representatives, respectively. Showing improvement over recent quarters, U.S operating profit is projected to increase in line with sales.

Avon said that Europe continues to generate exceptional results, driven in large part by another stellar performance in Russia, the company's fastest growing market. Europe's second quarter sales are expected to be up over 20% in dollars and in the high teens in local currencies. Dollar operating profit is forecast to grow over 40%.

Latin America should post a double-digit increase in dollar sales and a mid-teens increase in local currencies, driven by an anticipated 12% gain in units that continues the strong volume growth the region experienced in the first quarter. Dollar operating profit should grow in line with sales.

The Asia/Pacific region is forecast to generate a high-teens sales gain (up low-teens in local currency), with dollar operating profit growth expected to exceed 25%. As anticipated, China continues to be a standout performer in the region, with sales projected to grow nearly 50%.

Commenting on the outlook, Andrea Jung, Avon's chairman and chief executive officer, said, "The underlying health of Avon's business remains extremely strong, and we continue to make excellent progress with our strategies. Additionally, we are pleased to extend the scope of our Business Transformation efforts to include Avon's cash management and tax strategies, improving our earnings power for shareholders beyond that delivered by the continuing strength of our global operations," Ms. Jung concluded.

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

Cautionary 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 and Central and Eastern Europe; the Company's ability to implement its business, cash management and tax strategies and its Business Transformation initiatives, including the integration of similar activities across markets to achieve efficiencies; the Company's ability to achieve anticipated cost savings and its profitability and growth targets; 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.

SOURCE: Avon Products, Inc.

CONTACT: Media, Victor Beaudet, +1-212-282-5344, Investor, Renee
Johansen, or Rob Foresti, +1-212-282-5320, all of Avon

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