Avon Reports Record Second Quarter Results
Earnings Per Share Up 10% on 5% Sales Growth
Jul 19, 2001
Sales Momentum Accelerating, Particularly in U.S.
NEW YORK, July 19 /PRNewswire/ -- Avon Products, Inc. (NYSE: AVP) today reported record sales and earnings in the second quarter of 2001, reflecting accelerating momentum in its U.S. business and double-digit local currency sales and profit growth from international operations.
Earnings on a diluted basis rose 10% in the quarter to $.57 per share, versus $.52 per share in the year-ago period. Reported earnings were in line with Wall Street expectations and prior guidance by the company. Net income in the quarter also increased 10% to $137.7 million, from $124.9 million in second quarter of 2000.
Sales in the second quarter rose 5% to $1.45 billion, versus $1.38 billion in the prior-year period. Excluding the impact of foreign currency translation, sales increased 10%, driven by a 10% increase in units and an 11% increase in active Representatives.
Sales performance in the quarter represents accelerating year-over-year sales growth compared with first quarter, when Avon reported a sales increase of 3% in dollars and 8% in local currencies versus prior year. Sales of Avon's U.S. operations rose a very strong 6% in the second quarter over prior year, following a 2% year-over-year increase in the first quarter.
Avon said gross margin in the second quarter improved 10 basis points to 64.3% and operating margin increased 30 basis points to 16.1%. This was a record second-quarter operating margin and the highest level in any quarter in nine years.
Commenting on the results, Andrea Jung, Avon's chief executive officer, said, "We're very pleased with the increasing momentum in our global direct selling operations in the quarter, especially against the backdrop of uncertain economies and the challenging comparisons we had with last year's second quarter, when sales and earnings per share grew 10% and 13%, respectively.
"We're especially encouraged by the accelerating sales growth in the U.S., where we continue to focus on building Avon's brand image and providing more career options and business-building tools for our Representatives," Ms. Jung said. "We expect the U.S. momentum to continue in the third and fourth quarters," she added.
"Also noteworthy was the strong 10% unit growth, on top of 10% growth in last year's second quarter. Importantly, worldwide beauty sales increased a very solid 6%, making this the eighth consecutive quarter in which beauty sales have outpaced Avon's overall sales. We've also posted seven consecutive quarters of double-digit growth in the number of active Representatives -- with gains in all geographic regions -- a trend indicating that our market penetration is expanding around the world," Ms. Jung said. "These results demonstrate the inherent strength in Avon's core beauty and direct selling business, and that our strategies for delivering profitable growth are working," Ms Jung said.
"Looking ahead, we see sales growth accelerating, with local currency growth rates 1-2 points higher in third and fourth quarters than they were in the second, and we expect to report another year of strong earnings in 2001, despite currency uncertainties in Latin America. Even with currencies at their present weakened levels in Brazil and Mexico, we remain confident that we can achieve the consensus earnings estimate of $2.09 per share for the year -- without the net benefit from the Sears settlement we announced last week -- due to the gathering strength in our global portfolio," Ms. Jung said.
Avon will conduct a conference call today at 11:00 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 6% in the quarter on top of a 6% gain in the second quarter of 2000. Sales benefited from a healthy 5% increase in beauty product sales, as well as the highly successful launch of the new Avon Wellness business. The number of active Representatives in the U.S. increased 4% in the quarter, the highest growth rate since 1995 and well above the historical trend line.
Operating profit in the U.S. rose 6%, in line with expectations, even with continued increased investments in new customer growth strategies.
The Europe region posted a sales increase of 12% in the quarter. Excluding the impact of foreign currency exchange, sales were up 18%. Key business indicators across the region grew in the double digits, including units, up 16%, and the number of active Representatives, up 21%. The markets of Central and Eastern Europe continued to deliver substantial double-digit sales gains, and Russia's sales more than doubled in the quarter.
Operating profit in Europe increased 18% in the quarter (up 22% excluding currency exchange), driven by the region's sales growth and a 22% operating profit increase in the U.K., the region's largest market.
In Latin America, sales in the second quarter increased 7%, but excluding the impact of foreign currency exchange, sales rose 15%, reflecting a 13% increase in units and a 9% increase in the number of active Representatives. Operating profit in the region increased 6%, but excluding the impact of foreign currency exchange, rose 12%.
Mexico delivered excellent results in the quarter. Sales increased 15%, driven by 8% growth in units and 10% in active Representatives, and operating profit grew more than 20%. In Brazil, sales and operating profit in dollar terms were down single-digits but rose double-digits in local currency, reflecting a 15% increase in units and a 5% increase in active Representatives in the quarter. In Argentina, sales and operating profit declined, as expected, due to continuing economic weakness.
In the Pacific region, sales declined 7% in dollar terms but increased 5% in local currencies. Units rose 8% and active Representatives were up 12% in the quarter, with most major markets showing increases. China, which utilizes innovative forms of retail selling, continued to deliver excellent sales and unit growth in the quarter.
Operating profit in the Pacific region declined 4% in dollar terms, but increased 10% excluding currency exchange, with local-currency gains in all major markets except Taiwan. Japan, Avon's largest market in the region, continued to improve profitability, posting more than a 20% increase in local currency operating profit.
For the first six months of 2001, Avon reported diluted earnings of $.91 per share, up 15% from $.79 per share in the first six months of 2000. The 2000 earnings per share includes a $.03 charge for the cumulative effect of an accounting change. Excluding the charge, earnings per share rose 11% in the first half. Net income in the first half of 2001 increased 16% to $219.4 million, versus $188.6 million in the year-ago period. Net income in the 2001 and 2000 periods includes charges of $0.3 million and $6.7 million, respectively, for the cumulative effect of accounting changes. Excluding the charge in both periods, net income rose 12% in the first half.
Sales in the first half of 2001 were up 4% to $2.80 billion, compared with $2.69 billion in the first six months of 2000. Excluding the impact of foreign currency exchange, sales increased 9% in the first half of 2001 over prior year.
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 and Advance Techniques Hair 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 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) Percent Percent Three months ended Six months ended June 30 Change June 30 Change 2001 2000 2001 2000 Net sales $1,452.5 $1,382.6 5% $2,799.7 $2,689.3 4% Other revenue 10.2 10.0 20.8 20.4 Total revenue 1,462.7 1,392.6 5% 2,820.5 2,709.7 4% Cost of sales 522.5 498.6 1,023.6 989.4 Marketing, distribution and administrative expenses 704.4 673.6 1,415.3 1,362.1 Operating profit 235.8 220.4 7% 381.6 358.2 7% Interest expense 18.9 22.8 38.6 42.7 Interest income (4.2) (2.1) (6.2) (3.9) Other expense, net * 7.3 4.6 8.9 14.8 Total other expenses 22.0 25.3 41.3 53.6 Income from continuing operations before taxes, minority interest and cumulative effect of accounting changes 213.8 195.1 10% 340.3 304.6 12% Income taxes 74.6 69.2 119.1 108.3 Income from continuing operations before minority interest and cumulative effect of accounting changes 139.2 125.9 11% 221.2 196.3 13% Minority interest (1.5) (1.0) (1.5) (1.0) Income from continuing operations before cumulative effect of accounting changes 137.7 124.9 10% 219.7 195.3 12% Cumulative effect of accounting changes, net of tax .0 .0 (.3) (6.7) Net income $137.7 $124.9 10% $219.4 $188.6 16% Earnings per share: Basic earnings per share: Continuing operations $.58 $.53 9% $.92 $.82 12% Cumulative effect of accounting changes -- -- (.00) (.03) $.58 $.53 9% $.92 $.79 16% Diluted earnings per share: Continuing operations** $.57 $.52 10% $.91 $.82 11% Cumulative effect of accounting changes -- -- (.00) (.03) $.57 $.52 10% $.91 $.79 15% Average shares outstanding: Basic 236.74 237.50 237.32 237.57 Diluted 245.80 239.56 246.28 239.35 * For the three months ended June 30, Other expense, net includes foreign exchange losses of $6.3 and $2.9 in 2001 and 2000, respectively. For the six months ended June 30, Other expense, net includes foreign exchange losses of $6.1 and $9.9 in 2001 and 2000, respectively. ** For purposes of calculating diluted earnings per share for the three and six months ended June 30, 2001, after tax interest expense of $2.5 and $5.0, respectively, applicable to convertible debt have been added back to net income. Notes: For the six months ended June 30, 2001, the Company recorded a charge of $0.3, after tax, to reflect the adoption of FASB Statement No. 133, "Accounting For Derivative Instruments and Hedging Activities". This charge is reflected as a cumulative effect of an accounting change in the Consolidated Statements of Income. For the six months ended June 30, 2000, the Company recorded a charge of $6.7, after tax, to reflect the adoption of Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". This charge is reflected as a cumulative effect of an accounting change in the Consolidated Statements of Income. Restatements were made to previously reported 2000 quarterly information to reflect the adoption of SAB 101. For the year ended December 31, 2000, the Company adopted the provisions of Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping and Handling Fees and Costs" which requires that amounts billed to customers for shipping and handling fees be classified as revenues. All prior periods have been restated to reflect shipping and handling fees, previously reported in Marketing, distribution & administrative expenses, in Other revenue in the Consolidated Statements of Income.
SOURCE: Avon Products, Inc.
Contact: Media - Brian T. Martin, +1-212-282-5103, or Victor Beaudet,
+1-212-282-5344, Investor - Carol Murray-Negron, or Renee Johansen,
+1-212-282-5320, all of Avon Products, Inc.
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