Avon Reports Record Second Quarter Results; Earnings Per Share Climb 13% on 10% Sales Growth
Jul 20, 2000
Avon Products, Inc. (NYSE: AVP) today reported record sales and earnings per share for the second quarter of 2000, on the continued strength of its core direct selling operations around the world.
Sales rose a robust 10% in the quarter to $1.38 billion, versus $1.26 billion in the prior-year period, driven by 10% growth in worldwide sales of beauty products, 10% growth in total unit volume and a 12% increase in active sales representatives. Excluding the effect of foreign currency translation, sales rose 13% in the quarter.
Earnings per share climbed 13% to $.52 on a basic and diluted basis, compared with $.46 per share on a basic and diluted basis a year ago. The earnings increase reflects operating profit growth of 12% in the quarter, after significant incremental investments to fund the company's growth strategies. Net income was $124.5 million, up 3% from $121.4 million in the prior-year period.
Operating margin improved by 0.4 points to 16.0% in the quarter, the highest level in eight years, and gross margin of 64.0% was nearly equal with the eleven-year-high level achieved in the second quarter of last year.
"We are extremely pleased with the results in the quarter, which further demonstrate the underlying health of our business and the effective implementation of our strategic initiatives, both in the U.S. and internationally," said Andrea Jung, Avon's president and chief executive officer.
"All geographic regions contributed to the sales and profit increase, and we are particularly pleased to see continued solid sales and customer growth in large established markets like the U.S. and U.K.," Ms. Jung said. "At the same time, our operations in most developing markets of Latin America, Europe and Asia continue to expand sales and profits at strong double-digit rates."
"We are confident that our strategies to enhance Avon's brand image and reach new customers will continue to produce positive results and that we can achieve our stated targets for sales and earnings per share growth for the full year," she added.
Continuing the positive momentum from the first quarter, Avon's U.S. operations posted a very healthy 6% sales increase in the second quarter. Sales of cosmetics, fragrance and toiletries (CFT) rose 6%, with double-digit growth in color cosmetics and fragrance products. All major U.S. business indicators were up, including increases of 10% in units, 5% in customers served and 1% in active representatives. Operating profit rose 6% and operating margin was even with last year, despite significantly higher spending on strategic initiatives such as consumer advertising and sampling, as well as programs to contemporize Avon's direct selling system.
In Latin America, sales rose 12% (up 18% excluding the effects of foreign currency exchange), with all major markets in the region posting increases. The two largest markets - Mexico and Brazil - each recorded double-digit sales growth. Active representatives increased 9% and units were up 4% in the region. Operating profit in Latin America rose 13%, led by solid increases in Mexico, Brazil, Venezuela, Central America and Chile.
In Europe, sales rose 6% (a 16% increase excluding foreign currency exchange) led by continued rapid expansion in Central and Eastern Europe and a solid 7% gain in the U.K. Nearly all major markets posted sales gains in local currencies, reflecting unit growth of 22% and a 23% increase in active representatives. Operating profits in Europe rose 13%, driven by Central and Eastern Europe, where profits jumped more than 35%.
The Pacific region posted very strong results in the second quarter, continuing the year-over-year gains recorded in the first quarter. Sales climbed 17% (a 15% increase excluding foreign currency exchange), powered by a 21% increase in active representatives and an 18% increase in units. Operating profits rose 29%, with nearly all major markets up strong double digits. Japan, the largest market in the region, continued to significantly improve profitability and posted its second consecutive quarter of solid local currency sales growth.
For the first six months of 2000, Avon reported basic earnings per share of $.84 ($.83 on a diluted basis), up 14% from $.74 per share ($.73 diluted) before one-time charges in the first six months of 1999. Net income in the first half was $199.3 million, versus $194.4 million before one-time charges in the year-ago first half.
One-time charges in the 1999 period totaled $121.9 million after tax, or $.46 per share (basic and diluted). Including the charges, Avon reported net income last year of $72.5 million, or $.28 per share on a basic basis ($.27 per share diluted).
Sales in the first half of 2000 rose 9% to $2.70 billion, compared with $2.47 billion in the first six months of 1999. Excluding the effects of foreign currency translation, sales rose 12% year-over-year.
Avon is the world's leading direct seller of beauty and related products, with $5.3 billion in annual revenues. Avon markets to women in 137 countries through 3 million independent sales representatives. Avon product lines include such recognizable brands as Anew, Skin-So-Soft, Avon Color, Far Away, Rare Gold, Perceive, Women of Earth and Avon Skin Care. Avon also markets an extensive line of fashion jewelry, apparel, gifts and collectibles. More information about Avon and its products can be found on the company's award-winning website http://www.avon.com/.
Cautionary Statement under the Private Securities Litigation Reform Act of 1995
Statements in this release, which 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 important factors which may cause the actual results of 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 important factors include, among others, the following: general economic and business conditions in the Company's markets; the Company's ability to implement its business strategy; the Company's ability to achieve anticipated cost savings and profitability targets; the impact of substantial currency exchange devaluations in the Company's principal foreign markets; and the effect of legal and regulatory proceedings and restrictions imposed on the Company or its operations by foreign governments. Additional information identifying such important factors is contained in the Company's Form 10-K report for the year ended December 31, 1999, filed with the S.E.C. The Company undertakes no obligation to update any such forward-looking statements.
AVON PRODUCTS, INC. CONSOLIDATED STATEMENT OF INCOME (In millions, except per share data) Three months Six months ended Percent ended Percent June 30 Change June 30 Change 2000 1999 2000 1999 NET SALES $1,378.1 $1,258.1 10% $2,703.0 $2,471.9 9% COST OF SALES * 496.4 451.7 993.7 959.9 MARKETING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES 661.9 610.6 1,345.1 1,252.3 SPECIAL CHARGE -- -- -- 105.2 OPERATING PROFIT 219.8 195.8 12% 364.2 154.5 136% INTEREST EXPENSE 22.8 8.9 42.7 17.9 INTEREST INCOME (2.1) (2.2) (3.9) (5.4) OTHER EXPENSE (INCOME), NET 4.5 0.7 14.8 (7.1) TOTAL OTHER EXPENSES 25.2 7.4 53.6 5.4 INCOME BEFORE TAXES AND MINORITY INTEREST 194.6 188.4 3% 310.6 149.1 108% INCOME TAXES 69.0 67.8 110.2 79.2 INCOME BEFORE MINORITY INTEREST 125.6 120.6 4% 200.4 69.9 187% MINORITY INTEREST (1.1) .8 (1.1) 2.6 NET INCOME $124.5 $121.4 3% $199.3 $72.5 175% EARNINGS PER SHARE: BASIC $.52 $.46 13% $.84 $.28 200% DILUTED $.52 $.46 13% $.83 $.27 207% AVERAGE SHARES OUTSTANDING: BASIC 237.50 261.54 237.57 261.77 DILUTED 239.56 265.01 239.35 264.86 * SIX MONTHS ENDED 1999 INCLUDES A ONE-TIME CHARGE OF $46.0 FOR INVENTORY WRITE-DOWNS.
SOURCE: Avon Products, Inc.
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