Avon Reaffirms Outlook for Third Quarter and Full Year
Sep 3, 2002
Double-Digit Increases Expected in 3Q Local Currency Sales, Units and Active Representatives U.S. Seen Posting 5% Sales Increase and Record Operating Margin in Quarter
NEW YORK, Sept. 3 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE: AVP) today reaffirmed earnings per share expectations for the third quarter and full-year 2002, citing continued excellent sales and profit growth in the U.S and strong local currency results in its international operations.
The company said it remains comfortable with the consensus estimate for earnings per share of $.47 in the third quarter, compared with $.44 per share in the third quarter of last year, before unusual items in both periods.
In the third quarter of this year, as previously announced, Avon expects to record a special charge related to its Business Transformation initiatives. The charge is likely to be smaller than originally planned and is now estimated to be in the range of $40-$60 million pretax, or $.10-$.20 per share. Avon said no additional special charges are anticipated for the company to achieve its targeted 250 basis-point increase in operating margin from Business Transformation by the end of 2004.
In last year's third quarter, unusual items increased earnings by $.04 per share to $.48 per share.
For full-year 2002, Avon said it is on track to achieve its previously stated target of double-digit earnings growth, or $2.30 per share, compared with $2.09 per share in 2001, before unusual items in both years. In 2001, unusual items reduced earnings by $.24 per share to $1.85 per share.
Avon said local currency sales in the third quarter should be up double digits, on top of the very strong 12% increase in last year's third quarter. Sales growth is being driven by double-digit increases in both units and active Representatives, with all geographic regions posting solid gains. Dollar-denominated sales are expected to be up approximately 2% in the quarter, after the effects of foreign currency translation.
Operating profit in the third quarter is expected to increase at a mid-to-high teens percentage rate in local currencies and at a mid-single-digit rate in dollars. Operating margin should increase approximately 30 basis points from last year's record level of 12.6%, and gross margin is forecast to increase approximately 60 basis points.
Avon also said cash flow from operations continues to be strong, reflecting ongoing inventory improvements. The company is on track to generate its targeted $500-$550 million in cash flow for the full year, even after its plan to make a larger-than-anticipated cash contribution of approximately $75 million to its employee pension plan in the third quarter. An additional contribution to the pension plan is possible in the fourth quarter, the company said.
Commenting on the outlook for the quarter, Andrea Jung, Avon's chairman and chief executive officer, said, "The underlying strength of our global direct selling operations is continuing. The U.S. business should deliver another quarter of outstanding results, demonstrating that our largest developed market can achieve sustained, impressive growth. In addition, Europe and Asia each are posting double-digit profit increases, while in Latin America, robust local currency results in most markets are helping to offset weakness in Argentina.
"We're very pleased that Avon's overall performance for the year is on track despite the ongoing economic crisis in Argentina, and we look forward to posting our third consecutive year of double-digit earnings growth in 2002," Ms. Jung said.
Avon is scheduled to report third-quarter financial results on October 18. REGIONAL OUTLOOK FOR THIRD QUARTER
Sales in the U.S. in the third quarter are expected to increase 5%, on top of the 7% sales increase recorded in the third quarter of 2001, which was the highest third-quarter growth rate in recent years. Sales in the quarter are being driven by mid-single-digit unit growth and an estimated 2% increase in the number of active Representatives. Operating profit in the U.S. is expected to grow in the mid-to-high teens, and operating margin is forecast to expand by approximately 150 basis points to a record third-quarter level of over 16%, driven by continued benefits from Business Transformation.
In Europe, sales are forecast to be up over 20%, driven by growth in units and active Representatives in the 20% range. Operating profit is expected to increase in the mid teens. Europe's strong performance is resulting from ongoing substantial growth in the markets of Central and Eastern Europe, especially Russia, as well as solid sales and unit growth in the U.K., the largest market in the region. Europe's operating margin is forecast to be about 90 basis points lower due to significant investments in the quarter to implement the region's supply chain strategies.
In Latin America, sales are expected to be down mid-teens, but are forecast to advance at a mid-teens rate in local currencies, with solid growth in units and active Representatives. Most markets in the region are generating double-digit local currency sales gains, with especially robust growth in Brazil and Venezuela. In Argentina, local currency sales are expected to be about flat, and Avon's business there remains profitable on a dollar basis despite the country's economic issues and major currency devaluation. Operating profit in the region is forecast to be down approximately 10%, but should increase at a double-digit rate in local currencies, driven by results in Brazil, Mexico, Venezuela and Chile. Operating margin for the region is expected to be up about 80 basis points in the quarter.
In Asia, sales are expected to be up in the high single digits, driven by double-digit growth in units and active Representatives. All major markets are expected to contribute to the sales growth, particularly China and Taiwan. Asia's operating profit is expected to be up over 20%, reflecting strong growth in Japan, China and Taiwan. Substantial operating margin expansion in the range of 170 basis points is forecast for the region in the quarter.
Avon is the world's leading direct seller of beauty and related products, with approximately $6.0 billion in annual revenues. Avon markets to women in 143 countries through 3.5 million independent sales Representatives. Avon product lines include such recognizable brand names as Avon Color, Anew, Skin- So-Soft, Advance Techniques Hair Care, beComing 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.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 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 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 economic and political uncertainties in Latin America; the Company's ability to implement its business strategy 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 profitability targets; the impact of substantial currency exchange fluctuations in the Company's principal foreign markets and the success of the Company's foreign currency hedging and risk management strategies; the impact of possible pension funding obligations on the Company's cash flow and results of operations; 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/A report for the year ended December 31, 2001, filed with the S.E.C. The Company undertakes no obligation to update any such forward-looking statements.
SOURCE: Avon Products, Inc.
CONTACT: Media, Victor Beaudet, +1-212-282-5344, or Investor, Renee
Johansen or Rob Foresti, +1-212-282-5320, all of Avon Products, Inc.
Web site: http://www.avon.com/
Company News On-Call: http://www.prnewswire.com/comp/079575.html
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