Avon Reports Record Third Quarter Results; Earnings Per Share Climb 15% On Sales Gain Of 7%
Company on Track to Achieve Full-Year Growth Targets
Oct 18, 2000
Avon Products, Inc. (NYSE: AVP) today reported record sales and earnings per share for the third quarter of 2000. Sales increased 7% to $1.34 billion, compared with $1.25 billion in the third quarter of 1999. Excluding the effects of foreign currency exchange, sales rose 10% in the quarter. Earnings per share on a basic and diluted basis increased 15% to $.39, versus $.34 per share in the year-ago period. Net income increased 5% in the quarter to $93.0 million, versus $88.2 million in 1999.
Avon said all geographic regions generated sales and profits in line with its expectations, with gains in the U.S., Latin America and Asia-Pacific more than offsetting weakness in Europe, mainly related to currency issues. Key business indicators also advanced strongly in the quarter. Units grew 8% and the number of active representatives increased 15%, driven by improvements in all geographic regions.
In addition, Avon reported a record third quarter gross margin of 63.3%, and the highest third quarter operating margin in a decade, at 12.7%.
Commenting on the results, Avon's chief executive officer, Andrea Jung said, "This was another very solid performance for our global direct selling operations. The increased spending to strengthen the core business - approximately $60 million so far this year - is clearly paying off. We are extremely pleased with our results through September and, based on everything we see today, we're confident that we can achieve our stated target for the year of low to mid-teens growth in earnings per share."
Ms. Jung said that Avon's major strategic initiatives - including the launch of a new global Health and Well Being business, the launch of a new Internet web site for sales representatives and the development of a new beauty brand to be sold at retail - were progressing on schedule.
"These initiatives will leverage our strengths in direct selling and beauty and they represent significant new growth vectors for Avon over the long term," she said.
Avon's U.S. operations posted a 5% sales increase, and operating profit grew 8%, even after significantly increased spending on advertising, the Internet and other image-building initiatives. Total beauty sales (cosmetics, fragrance and toiletries) were up 9% in the quarter, reflecting the highly successful launch of several new products, including Retroactive, a technologically advanced skin care product under the Anew brand. Retroactive is expected to be the best selling skin care product in Avon's history.
Latin America posted very strong results in the quarter, with sales up 15% (up 18% excluding foreign currency exchange) and operating profit up 12%. Mexico had a particularly strong quarter which, along with solid gains in Brazil, Venezuela and Central America, more than offset continuing weaknesses in Argentina due to economic conditions there.
The Pacific region also had a strong quarter, generating a 9% sales increase (up 12% excluding foreign currency exchange) and a 9% operating profit increase over a very strong prior-year result. Japan's results continued to improve, with double-digit sales and unit growth and a significant profit gain over last year. China and the Philippines also contributed to the improved results for the region, despite a weakening Philippine peso.
In Europe, sales declined 3%, due mainly to currency weakness in several markets. Excluding foreign currency exchange, Europe's sales were up 9% in the quarter, driven by continued rapid growth in Poland and other Central/Eastern European countries. Operating profit was down 7%, due mainly to lower profits in Western Europe compared to an unusually strong year-earlier performance.
For the first nine months of 2000, Avon reported basic earnings per share of $1.23 ($1.22 diluted), up 14% from $1.08 per share basic ($1.07 diluted) in 1999, excluding a one-time charge of $.47 per share basic ($.46 diluted) last year related to Avon's companywide Business Process Redesign (BPR) program. Including the charge, last year's earnings per share for the first nine months were $.61 (basic and diluted).
Net income for the first nine months of 2000 was $292.3 million, versus $160.7 million in 1999, which included the one-time charge related to BPR of $121.9 million.
Sales in the first nine months of 2000 rose 9% to $4.05 billion, compared to $3.72 billion in 1999. Excluding foreign currency exchange, sales grew 11% over last 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 three million independent sales representatives. Avon product lines include such recognizable brands as Anew, Skin-So-Soft, Avon Color, Far Away, Rare Gold, Perceive, 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/
Notice of Live Webcast on Third Quarter Financial Results
Avon will conduct a conference call today with investors and securities analysts to discuss the financial results for the third quarter of 2000. The teleconference will be webcast live beginning at 9:30 a.m. New York time and can be accessed through the company's 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 ended Percent Nine months ended Percent September 30 Change September 30 Change 2000 1999 2000 1999 Net sales $1,342.7 $1,250.6 7% $4,045.7 $ 3,722.5 9% Cost of sales * 493.3 465.0 1,487.0 1,424.9 Marketing, distribution and administrative expenses 679.8 639.4 2,024.9 1,891.7 Special charge -- -- -- 105.2 Operating profit 169.6 146.2 16% 533.8 300.7 78% Interest expense 22.4 9.8 65.1 27.7 Interest income (2.1) (2.4) (6.0) (7.8) Other expense (income), net 4.0 2.5 18.8 (4.6) Total other expenses 24.3 9.9 77.9 15.3 Income before taxes and minority interest 145.3 136.3 7% 455.9 285.4 60% Income taxes 51.6 47.8 161.8 127.0 Income before minority interest 93.7 88.5 6% 294.1 158.4 86% Minority interest (.7) (.3) (1.8) 2.3 Net income $ 93.0 $88.2 5% $292.3 $160.7 82% Earnings per share: Basic $.39 $.34 15% $1.23 $ .61 102% Diluted** $.39 $.34 15% $1.22 $ .61 100% Average shares outstanding: Basic 237.54 260.40 237.56 261.31 Diluted 245.51 262.93 241.42 264.21 * Nine months ended 1999 includes a one-time charge of $46.0 for inventory write-downs. ** For purposes of calculating diluted earnings per share for the three and nine months ended September 30, 2000, after tax interest expense of $2.0 applicable to convertible debt has been added back to net income. AVON PRODUCTS, INC. SUPPLEMENTAL SCHEDULE % YEAR-OVER-YEAR CHANGE Favorable (Unfavorable) THIRD QUARTER 2000 Sales Business Regional In Unit Results Net Local Operating Sales($US) Currency Profit Units Active Reps North America 4 4 8 4 2 US 5 5 8 4 2 International 9 14 9 10 18 Latin America 15 18 12 6 10 Europe -3 9 -7 14 22 Pacific 9 12 9 18 34 Total from Operations 8 Global Expenses 11 Consolidated 7 10 16 8 15 YEAR-TO-DATE THIRD QUARTER Category Sales ($US) Global US Beauty 9 9 (Cosmetics/Fragrance/Toiletries) Beauty Plus 10 2 (Jewelry/Apparel/Accessories) Beyond Beauty -2 -1 (Gift & Decorative/Home Entertainment) FIRST NINE MONTHS Sales In Business Unit Active Regional Net Sales Local Currency Operating Units Reps Results ($US) Profit North America 6 6 5 7 2 US 6 6 6 7 2 International 11 15 16 9 18 Latin America 12 16 13 4 10 Europe 3 14 15 18 22 Pacific 16 15 30 19 34 Total from Operations 12 Global Expenses 5 Consolidated 9 11 18(1) 8 15 YEAR-TO-DATE FIRST NINE MONTHS Category Sales ($US) Global US Beauty 10 7 (Cosmetics/Fragrance/Toiletries) Beauty Plus 7 3 (Jewelry/Apparel/Accessories) Beyond Beauty 5 5 (Gift & Decorative/Home Entertainment) (1) Calculation excludes $46.0 million for inventory writedowns and $105.2 million special charge for first quarter 1999.
SOURCE: Avon Products, Inc.
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