Avon Reports Record Third Quarter Results
Oct 17, 2001
Earnings Per Share Up 16% Adjusted for Unusual Items; Sales Up 12% In Local Currencies Avon on Track for Another Year of Double-Digit EPS Growth, Despite Economic Uncertainties
NEW YORK, Oct. 17 /PRNewswire/ -- Avon Products, Inc. (NYSE: AVP) today reported record sales and earnings per share in the third quarter of 2001, despite slowing economic growth and currency volatility in the quarter.
Sales grew 6% to a record $1.41 billion, versus $1.34 billion in the third quarter of 2000. Excluding the impact of foreign currency exchange, sales were up 12% -- the strongest growth rate this year -- driven by a 12% increase in units and a 10% increase in the number of active Representatives worldwide. This is the 8th consecutive quarter of double-digit growth in active Representatives.
Earnings per share in the quarter, adjusted to exclude unusual items, rose 16% to $.44 per share, versus $.38 per share in the year-ago period.
The company excluded $.05 per share of the benefit related to the settlement agreement with Sears which compensates Avon for the cancelled launch of Avon's new retail cosmetics brand in Sears stores. In addition, Avon excluded a non-cash charge in the quarter of $14.5 million after tax, or $.06 per share, to write off the remaining carrying value of an order management software system; and a charge of $3.4 million after tax, or $.01 per share, to settle a tax liability in Argentina.
On a reported basis, including unusual items, earnings per share in the quarter rose 11% to $.42 per share, and net income rose 9% to $100.3 million, both records.
Adjusted for unusual items, operating profit in the quarter rose 6% to $179.5 million. Excluding the impact of foreign currency exchange, operating profit was up 15%, with all regions contributing to the growth. Adjusted operating margin was 12.6%, which is even with last year's record level, despite a $12 million increase in strategic spending in the quarter. Including the unusual items, operating profits rose 5% and operating margin was 12.5% in the quarter.
Commenting on the results, Andrea Jung, Avon's chairman and chief executive officer, said, "We are extremely pleased with Avon's performance in the quarter, especially on top of the very strong results in the third quarter of last year, and against the background of economic weakness in some parts of the world and the tragic events of September 11. The improvements in the quarter were broad-based, with all geographic regions performing in line with expectations," she said.
"The U.S., our largest market, delivered its best performance in years with a very strong 8% sales increase in the quarter. Prior to September 11, U.S. sales growth was tracking at an even higher rate, and, since then, while we have seen some effect on that exceptional growth rate, we are very pleased that Representative activity levels have essentially normalized. And, we are confident that the U.S. will deliver a stand-out performance in the fourth quarter, with sales growth in the mid-single digits," she said.
"Our international operations also posted the strongest gains in local currency sales and operating profit of any quarter this year, with gains of 14% and 18%, respectively, driven by double-digit increases in units and active Representatives in all geographic regions," she said.
"We also recorded our third consecutive quarter of very strong improvement in cash flow from operations, with a $52 million increase to $87 million, before the Sears settlement payment," Ms. Jung said.
"Our year-to-date results and the underlying strength of our business give us confidence that Avon's direct selling business model will continue to be a major competitive advantage going forward. We believe that the consensus estimate for earnings of $2.09 for the year on an adjusted basis is achievable. We also recognize that the unprecedented level of uncertainty on a number of external fronts could affect future results. Despite these challenges, we expect to deliver another year of double-digit earnings growth in 2001, which we believe would be an outstanding performance in relation to other consumer companies," Ms. Jung said.
Avon will conduct a conference call today at 10:00 a.m. New York time to discuss the results for the quarter and the outlook for the rest of the year. The conference call will be webcast live and can be accessed through the investor section of the company's website, http://www.avon.com/.
In the North America region, Avon U.S., the company's largest market, increased sales by 8% in the quarter, the highest third-quarter growth rate since 1996. Units grew a strong 13%, driven in part by the successful launch of a promotional lipstick line to raise funds for breast cancer research. The number of active Representatives increased 3% as expected, which is above historical growth rates.
Operating profit in the U.S. in the third quarter rose 10%, even with a higher level of investment in consumer marketing initiatives. Operating margin increased 30 basis points to 14.7%, the highest third-quarter level in nearly a decade.
In Europe, sales were up 14% in the quarter, and rose 17% in local currencies, driven by 18% growth in units and a 14% increase in the number of active Representatives. Europe posted a 31% gain in operating profit (up 33% excluding foreign currency exchange), driven by the region's developing markets as well as strong results in the U.K. The markets of Central and Eastern Europe continued to deliver substantial growth, with sales up 50% and operating profits up 70%.
Latin America generated sales growth of 4% in the third quarter, but a much stronger 15% in local currencies. Across the region, units and the number of active Representatives grew 11% and 12%, respectively, with all major markets contributing to the increases. Operating profit rose 6% in dollars and a very strong 16% in local currencies. Brazil, Mexico, Venezuela and Central America all posted double-digit sales and profit growth in local currencies, despite sluggish economic conditions in the region.
In the Pacific region, sales fell 2% in dollars but rose 8% in local currencies -- which was significantly higher growth than second quarter -- driven by an 11% increase in units and a 10% gain in the number of active Representatives. Most markets contributed to the local currency gains, particularly the Philippines and China. Operating profit in the region was down 1%, but increased 12% excluding the impact of foreign currencies.
For the first nine months of 2001, Avon said earnings per share adjusted for unusual items increased 13% to $1.35 per share, versus $1.20 per share before the cumulative effect of an accounting change in the first nine months of 2000.
Including unusual items, net income for the first nine months of 2001 was $319.7 million, or $1.33 per share, up 14% from $280.9 million, or $1.17 per share, in the prior-year period.
Sales in the first nine months of 2001 increased 5% to $4.21 billion, from $4.03 billion in the first nine months of 2000. Excluding foreign currency exchange, sales were up 10% over last year.
Year-to-date cash flow from operations increased $349 million through September 30. Excluding an income tax refund in the first quarter and the recent Sears settlement, cash flow from operations increased $227 million in the nine-month period.
Avon is the world's leading direct seller of beauty and related products, with $5.7 billion in annual revenues. Avon markets to women in 139 countries through 3.4 million independent sales representatives. Avon product lines include such recognizable brands as Anew, Avon Color, Skin-So-Soft, Advance Techniques Hair Care, beComing" and Avon Wellness. Avon also markets an extensive line of fashion jewelry, apparel and collectibles. More information about Avon and its products can be found on the company's award-winning web site 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, including the potential impact of the September 11 attacks on consumer confidence; 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 fluctuations 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, 2000, filed with the S.E.C. 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 months Percent Nine months Percent ended Change ended Change September 30 September 30 2001 2000 2001 2000 Net sales $1,412.8 $1,336.0 6% $4,212.5 $4,025.3 5% Other revenue 9.7 9.7 30.5 30.1 1,422.5 1,345.7 6% 4,243.0 4,055.4 5% Cost of sales 525.0 490.2 1,548.6 1,479.6 Marketing, distribution and administrative expenses 722.3 686.9 2,137.6 2,049.0 Contract settlement gain, net of related expenses (1) (25.9) -- (25.9) -- Asset impairment charge (2) 23.9 -- 23.9 -- Operating profit 177.2 168.6 5% 558.8 526.8 6% Interest expense 16.1 22.4 54.7 65.1 Interest income (3.5) (2.1) (9.7) (6.0) Other expense, net (3) 12.4 4.0 21.3 18.8 Total other expenses 25.0 24.3 66.3 77.9 Income from continuing operations before taxes, minority interest and cumulative effect of accounting changes 152.2 144.3 5% 492.5 448.9 10% Income taxes 51.3 51.1 170.4 159.4 Income from continuing operations before minority interest and cumulative effect of accounting changes 100.9 93.2 8% 322.1 289.5 11% Minority interest (0.6) (0.9) (2.1) (1.9) Income from continuing operations before cumulative effect of accounting changes 100.3 92.3 9% 320.0 287.6 11% Cumulative effect of accounting changes, net of tax -- -- (0.3) (6.7) Net income $100.3 $92.3 9% $319.7 $280.9 14% Earnings per share: Basic earnings per share: Continuing operations $.42 $.39 8% $1.35 $1.21 12% Cumulative effect of accounting changes -- -- (0.00) (0.03) $.42 $.39 8% $1.35 $1.18 14% Diluted earnings per share: Continuing operations (4) $.42 $.38 11% $1.33 $1.20 11% Cumulative effect of accounting changes -- -- (0.00) (0.03) $.42 $.38 11% $1.33 $1.17 14% Average shares outstanding: Basic 236.28 237.54 236.97 237.56 Diluted 245.73 245.51 246.09 241.42 Notes: (1) For the three and nine months ended September 30, 2001, the Company received a cash settlement, net of related expenses, of $25.9 pretax ($15.7 after tax; $0.06 diluted EPS) to compensate Avon for lost profits and incremental expenses as a result of the cancellation of a retail agreement with Sears. Lost profits attributable to the third quarter 2001 are estimated to be $4.3 pretax ($2.6 after tax; $0.01 diluted EPS), which are included in EPS adjusted for unusual items as referenced in the Press Release dated October 17, 2001. (2) For the three and nine months ended September 30, 2001, the Company recorded a non-cash charge of $23.9 pretax ($14.5 after tax) to write-off the carrying value of costs related to an order management system known as the "FIRST" project. (3) For the three months ended September 30, Other expense, net includes foreign exchange losses of $2.3 and $2.2 in 2001 and 2000, respectively. For the nine months ended September 30, Other expense, net includes foreign exchange losses of $8.4 and $12.1 in 2001 and 2000, respectively. Additionally, the three and nine months ended September 30, 2001 include a $6.4 million pretax expense ($3.4 after tax) related to the settlement of a tax assessment in Argentina. (4) For purposes of calculating diluted earnings per share for the three months ended September 30, 2001 and 2000, after tax interest expense of $2.5 and $2.0, respectively, applicable to convertible debt have been added back to net income. For purposes of calculating diluted earnings per share for the nine months ended September 30, 2001 and 2000, after tax interest expense of $7.5 and $2.0, respectively, applicable to convertible debt have been added back to net income.
SOURCE: Avon Products, Inc.
Contact: Media - Brian T. Martin, +1-212-282-5103, and Victor Beaudet,
+1-212-282-5344, or Investors - Carol Murray-Negron or Renee Johansen,
+1-212-282-5320, all of Avon Products, Inc.
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