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Avon Reports Second-Quarter Earnings of $.33 Per Share

Total Revenue Up 5%

Results Include $49 Million in Restructuring Implementation Costs

PRNewswire-FirstCall
NEW YORK
Jul 31, 2006

Avon Products, Inc. (NYSE: AVP) today reported second-quarter 2006 earnings of $.33 per share, compared with 2005 second-quarter earnings of $.69 per share. The company said the 2006 quarter included a negative impact of $49 million pretax, or $.07 per share after taxes, in costs to implement the current phase of its previously announced restructuring program. The 2006 quarter also included a net favorable impact of less than $.01 per share resulting from a $.03-per- share benefit from a tax refund, and $.02 per share of incremental tax costs from repatriation of international earnings. The 2005 quarter included a $.20-per-share benefit primarily from settlements of tax audits.

Avon said that total revenue was $2.1 billion in the second quarter of 2006, 5% higher year over year (4% higher in local currency). Active Representatives grew 4%. Both of these measures benefited from the company's late-2005 acquisition of its licensee in Colombia. Units decreased 1% year over year. Total sales of Beauty products in the quarter rose 4% in dollars and 3% in local currency.

Operating profit of $225 million decreased 35%, or $119 million, from the 2005 level, and operating margin was 10.8% in the 2006 period, versus 17.3% in the prior-year quarter.

Second-quarter 2006 operating profit included costs of $49 million to implement restructuring initiatives under the company's turnaround plan. These initiatives included an organization realignment and downsizing to reduce organization layers and move management closer to its markets, Representatives and consumers, and the exit of certain unprofitable operations.

In line with its major turnaround initiative to boost brand competitiveness, Avon said it increased advertising in all regions, with the total spend growing 78% in the quarter to over $50 million, supporting the launch of several new products as well as the opening of direct selling in China.

In addition to costs associated with the turnaround plan, the second quarter of 2006 included unfavorable year-over-year increases in provisions for performance-based compensation, reinstatement of a 401(k) matching program and stock-option expensing. The adoption of stock-option expensing, effective January 1, 2006, and design changes to share-based compensation plans related to that adoption, reduced operating profit by $15 million.

Interest expense in the second quarter 2006 rose significantly year over year due to a higher debt level primarily associated with the company's aggressive share repurchase program in late 2005, as well as higher interest rates.

The quarter's effective tax rate was 30.7% compared with 2005's rate of 3.0%. The lower rate in the 2005 quarter resulted primarily from the aforementioned audit settlements. Net income in the second quarter 2006 was $151 million, compared with $329 million a year ago.

At quarter end, Avon's total debt had increased $100 million from the year-end level, and cash had increased $56 million. Net cash provided by operating activities was $289 million through six months of 2006, up $56 million from the prior-year period.

Avon's share repurchases totaled $94 million and $138 million in the second quarter and first half of 2006, respectively. The company continues to repurchase its shares under an existing five-year, $1.0 billion repurchase authorization.

Andrea Jung, chairman and CEO, commented, "This quarter's results reflect the aggressive actions we are taking to return our business to sustainable growth. While we are still in the early days of our turnaround, we are pleased with Avon's progress, and we continue to work diligently on all fronts of our plan, with 2006 being a transition year.

"At this mid-point in the year, we have essentially completed actions to delayer our organization, and are beginning to see early savings from that initiative. When fully realized, we estimate that annualized savings from delayering will approach $200 million, a majority of the more than $300 million total benefit we expect to generate from our restructuring effort," Ms. Jung concluded.

Second-Quarter Regional Highlights

In the North America region, second-quarter revenue was flat with the prior year on both a dollar and local-currency basis. A larger average order offset a 7% decline in active Representatives in the region. The region has seen Representative ordering activity decrease as fuel prices have escalated over the last two years. Second-quarter units were 5% lower. North America segment operating profit decreased 36%, and operating margin was 9.8%. Operating profit included $9 million in costs to implement restructuring activities and a substantial increase in advertising.

In Latin America, second-quarter revenue grew 17% (13% in local currency) as the region benefited from the Colombia acquisition, which contributed 10 points of revenue growth, and continued strength in Brazil, which more than compensated for continued softness in Mexico. The region's active Representatives rose 13% and units increased 6% in total. The region's operating profit decreased 24%, as it was unfavorably impacted by costs to implement restructuring initiatives of $20 million and a substantial increase in advertising. The region's operating margin was 14.8%.

Second-quarter revenue in Western Europe, Middle East & Africa increased 2% (5% in local currency) largely driven by growth in Turkey. Active Representatives were flat with the prior-year period, and units increased 4% year over year. The region's operating profit decreased 11% year over year, and operating margin was 9.5%. Operating profit included increased advertising investment as well as ERP implementation costs.

In Central & Eastern Europe, revenue in the second quarter rose 4% (2% in local currency) and active Representatives grew 7%. Units sold declined 6% versus the year-ago period, mainly due to underperformance in color cosmetics, particularly in Central Europe. The region's revenue growth was primarily driven by double-digit revenue growth in Russia partially offset by revenue declines in certain other countries, principally Poland. The region's operating profit was 11% lower, and operating margin was 24.6%. Operating profit was unfavorably impacted by higher product costs and increased advertising.

Asia Pacific revenue was 10% lower in the quarter (8% lower in local currency), active Representatives decreased 14% and units declined 11%, as the region was unfavorably impacted by a continued significant decline in its Japan direct-mail business as well as the first-quarter 2006 closing of Indonesian operations. The region's operating profit was 63% lower year over year, largely due to the lower revenue and $10 million in costs to implement restructuring, primarily in Japan. Operating margin was 6.2%.

Revenue in China grew 8% (5% in local currency) including the commencement of direct selling as well as the unfavorable impact of the exit of company-run beauty counters. Units were 4% lower year over year in the second quarter. As announced earlier this month, Avon ended the quarter with over 114,000 certified Sales Promoters registered with the Chinese government, and more than 31,000 applicants currently in the process of being certified under the direct-selling license received by Avon in March of this year. China had an operating loss of $4 million in the second quarter, versus an operating loss of $1 million in 2005's second quarter, due to increased advertising expenses associated with the launch of direct selling and $2 million in costs to implement restructuring initiatives. Operating margin was (9.0)%.

In addition to the variances noted earlier, year-over-year increases in global expense allocations negatively impacted all regions in the second quarter of 2006. Global expenses, net of allocation to the segments, rose 95%, largely due to $9 million in costs to implement restructuring initiatives, as well as higher compensation-related and option expenses.

Avon will conduct a conference call at 9:00 A.M. today to discuss the quarter's results. The dial-in number for the call is (800) 843-2086 in the U.S. or (706) 643-1815 from non-U.S. locations (conference ID number 2950050). Additionally, the call will be webcast live and can be accessed at http://www.avoninvestor.com/ for a period of two weeks.

Avon, the company for women, is a leading global beauty company, with over $8 billion in annual revenue. As the world's largest direct seller, Avon markets to women in well over 100 countries through over five million independent Avon Sales Representatives. Avon's product line includes beauty products, fashion jewelry and apparel, and features such well-recognized brand names as Avon Color, Anew, Skin-So-Soft, Avon Solutions, Advance Techniques, Avon Naturals, Mark, and Avon Wellness. Learn more about Avon and its products at http://www.avoncompany.com/.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Statements in this release that are not historical facts or information are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," "planned," "potential" and similar expressions, or the negative of those expressions, may identify forward-looking statements. 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 Avon 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:

  -- our ability to implement the key initiatives of our global business
     strategy, including our multi-year restructuring initiatives, product
     mix and pricing strategies, enterprise resource planning, customer
     service initiatives and cash management, tax, foreign currency hedging
     and risk management strategies, and our ability to achieve anticipated
     benefits from such initiatives;

  -- the possibility of business disruption in connection with our
     multi-year restructuring initiatives;

  -- our ability to achieve growth objectives, particularly in our largest
     markets and new and emerging markets;

  -- our ability to replace lost sales attributable to the repositioning of
     the Beauty Plus and Beyond Beauty business in the United States;

  -- our ability to successfully identify new business opportunities and
     acquisition candidates, and our ability to successfully integrate or
     manage any acquired business;

  -- the effect of political, legal and regulatory risks, as well as foreign
     exchange or other restrictions, imposed on us, our operations or our
     Representatives by governmental entities;

  -- our ability to successfully transition our business in China in
     connection with the resumption of direct selling in that market and our
     ability to operate using the direct-selling model permitted in that
     market;

  -- the impact of substantial currency fluctuations on the results of our
     foreign operations;

  -- general economic and business conditions in our markets, including
     social, economic and political uncertainties in Latin America, Asia
     Pacific, Central and Eastern Europe and the Middle East;

  -- a general economic downturn, information technology systems outages,
     disruption in our supply chain or manufacturing and distribution
     operations, or other sudden disruption in business operations beyond
     our control as a result of events such as September 11, 2001 or
     Hurricane Katrina;

  -- the quality, safety and efficacy of our products;

  -- our ability to attract and retain key personnel and executives;

  -- competitive uncertainties in our markets, including competition from
     companies in the cosmetics, fragrances, skin care and toiletries
     industry, some of which are larger than we are and have greater
     resources;

  -- our ability to implement our Sales Leadership program globally, to
     generate Representative activity, to increase Representative
     productivity, and to compete with other direct-selling organizations to
     recruit, retain and service Representatives;

  -- the impact of changes in market trends, purchasing habits of our
     consumers and changes in consumer preferences, particularly given the
     global nature of our business and the conduct of our business in
     primarily one channel;

  -- our ability to protect our intellectual property rights;

  -- the risk of an adverse outcome in our material pending and future
     litigations;

  -- our access to financing; and

  -- the impact of possible pension funding obligations and increased
     pension expense on our cash flow and results of operations.

Additional information identifying such factors is contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2005, filed with the U.S. Securities and Exchange Commission. We undertake no obligation to update any such forward-looking statements.

                           AVON PRODUCTS, INC.
                    CONSOLIDATED STATEMENTS OF INCOME
                   (In millions, except per share data)

                      Three months ended  Percent  Six months ended  Percent
                           June 30         Change       June 30       Change
                      ------------------  -------  ----------------  -------
                        2006      2005              2006      2005
                      --------  --------          --------  --------

  Net sales           $2,058.9  $1,963.9     5%   $4,041.3  $3,824.8     6%
  Other revenue           20.6      20.4              41.4      40.6
                      --------  --------          --------  --------
       Total revenue   2,079.5   1,984.3     5%    4,082.7   3,865.4     6%

  Cost of sales (1)      776.5     730.4           1,556.2   1,428.6
  Marketing, distribution
   and administrative
   expenses (1)        1,077.7     909.9           2,215.0   1,832.3
                      --------  --------          --------  --------
      Operating profit   225.3     344.0   -35%      311.5     604.5   -48%
                      --------  --------          --------  --------

  Interest expense        23.9      10.5              50.4      20.6
  Interest income        (16.7)     (8.1)            (29.9)    (15.9)
  Other expense, net (2)   0.8       0.8               2.4       5.3
                      --------  --------          --------  --------
       Total other
        expenses           8.0       3.2              22.9      10.0

  Income before taxes
   and minority
   interest              217.3     340.8   -36%      288.6     594.5   -51%
  Income taxes (3)        66.6      10.3              81.1      90.1
                      --------  --------          --------  --------

  Income before minority
   interest              150.7     330.5             207.5     504.4
  Minority interest        0.2      (1.9)             (0.4)     (3.8)
                      --------  --------          --------  --------
  Net income            $150.9    $328.6   -54%     $207.1    $500.6   -59%
                      ========  ========          ========  ========

  Earnings per share:
  Basic                   $.34      $.70   -51%       $.46     $1.06   -57%
                      ========  ========          ========  ========
  Diluted                 $.33      $.69   -52%       $.46     $1.05   -56%
                      ========  ========          ========  ========

  Average shares
   outstanding:
  Basic                 449.36    471.45            450.05    471.70
  Diluted               451.87    475.57            452.24    476.28


  (1) For the three and six months ended June 30, 2006, costs to implement
      restructuring initiatives impacted cost of sales by $0.2 and ($0.3)
      respectively, and Marketing, distribution and administrative expenses
      by $49.2 and $169.8 respectively.

  (2) For the three months ended June 30, 2006 and 2005, Other expense, net
      includes foreign exchange losses of $0.1 and $3.9, respectively. For
      the six months ended June 30, 2006 and 2005, Other expense, net
      includes foreign exchange (gains) losses of ($0.4) and $5.8,
      respectively. During the second quarter of 2005, the Company recorded
      a gain on the sale of marketable securities of $4.9.

  (3) For the six months ended June 30, 2006, income taxes were impacted by
      a reduction in tax expense of $12.6, due to audit settlements and the
      closure of tax years by expiration of the statute of limitations.  For
      the three and six months ended June 30, 2005, income taxes were also
      impacted by a reduction in tax expense of $99.6 due to the completion
      of income tax examinations as well as the closure of a tax year by
      expiration of the statute of limitations, net of related adjustments.



                           AVON PRODUCTS, INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                               (Unaudited)
                              (In millions)

                                                June 30         December 31
                                                  2006               2005
                                               ========           ========
  Cash, including cash equivalents             $1,114.5           $1,058.7
  Accounts receivable, net                        565.2              634.1
  Inventories                                     897.4              801.7
  Prepaid expenses and other                      471.1              435.1
                                               --------           --------
  Total current assets                          3,048.2            2,929.6

  Property, plant and equipment, net            1,035.4            1,050.8
  Other assets                                  1,052.8              791.6
                                               --------           --------
  Total assets                                  5,136.4            4,772.0
                                               ========           ========

  Debt maturing within one year                   503.9              882.5
  Accounts payable                                524.6              538.2
  Other current liabilities                     1,174.2            1,089.6
                                               --------           --------
  Total current liabilities                     2,202.7            2,510.3

  Long-term debt                                1,245.0              766.5
  Other non-current liabilities                   683.5              701.0

  Total shareholders' equity                    1,005.2              794.2

                                               --------           --------
  Total liabilities and shareholders' equity   $5,136.4           $4,772.0
                                               ========           ========


                           AVON PRODUCTS, INC.
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (Unaudited)
                              (In millions)

                                                       Six Months Ended
                                                            June 30
                                                   -------------------------
                                                     2006              2005
                                                   -------           -------
  Cash Flows from Operating Activities:
  Net income                                       $207.1            $500.6
    Depreciation and amortization                    80.1              63.7
    Provision for doubtful accounts                  68.8              60.3
    Provision for obsolescence                       62.5              29.5
    Asset impairment                                  8.2                 -
    Share-based compensation                         33.3               5.7
    Deferred income taxes                           (30.1)              3.0
    Other                                             9.8               5.1

  Changes in assets and liabilities:
    Accounts receivable                              (0.7)            (28.2)
    Inventories                                    (161.0)           (147.4)
    Prepaid expenses and other                      (11.6)            (10.3)
    Accounts payable and accrued liabilities        106.6             (47.9)
    Income and other taxes                          (43.2)           (112.7)
    Non-current assets and liabilities              (40.4)            (87.8)
                                                   -------           -------
  Net cash provided by operating activities         289.4             233.6

  Cash Flows from Investing Activities:
  Capital expenditures                              (63.0)            (86.6)
  Disposal of assets                                  6.8               7.3
  Other investing activities                        (10.7)            (11.0)
                                                   -------           -------
  Net cash used by investing activities             (66.9)            (90.3)

  Cash Flows from Financing Activities:
  Cash dividends                                   (160.2)           (159.7)
  Total debt, net change                            114.8             234.8
  Repurchase of common stock                       (129.6)           (129.7)
  Proceeds from exercise of stock
   options, net of taxes                             16.5              55.2
  Other financing activities                         (0.5)             (0.3)
                                                   -------           -------
  Net cash (used) provided by financing activities (159.0)              0.3

  Effect of exchange rate changes on
   cash and equivalents                              (7.7)            (33.1)
                                                   -------           -------
  Net increase in cash and equivalents              $55.8            $110.5
                                                   =======           =======


               AVON PRODUCTS, INC. - SUPPLEMENTAL SCHEDULE

                        THREE MONTHS ENDED 6/30/06

                             REGIONAL RESULTS

                                     Total
                                    Revenue
                      Total Revenue in Local  Operating   Op.         Active
    $ in Millions          US$      Currency  Profit US$ Margin Units  Reps
                     -------------- -------- ----------- ------ ----- ------
                             % var. % var.         % var. 2006 % var. % var.
                               vs     vs             vs   per-   vs     vs
                              2Q05   2Q05           2Q05  cent  2Q05   2Q05
                     -------------- -------- ----------- ------ ----- ------
  North America      $620.1    0%     0%     $60.8  -36%  9.8%   -5%   -7%
  Latin America (1)   653.1    17     13      96.6   -24  14.8     6    13
  Western Europe,
   Middle East &
   Africa             273.5     2      5      25.8   -11   9.5     4     -
  Central & Eastern
   Europe             288.6     4      2      71.1   -11  24.6    -6     7
  Asia Pacific        196.3   -10     -8      12.1   -63   6.2   -11   -14
  China                47.9     8      5      (4.3)    *  -9.0    -4     *
  Total from
   Operations       2,079.5     5      4     262.1   -28  12.6    -1     4
  Global Expenses         -     -      -     (36.8)  -95     -     -     -
  Consolidated (1) $2,079.5    5%     4%    $225.3  -35% 10.8%   -1%    4%


                             CATEGORY SALES (US$)
                                                        Consolidated
                                                  -------------------------
                                                                   % var. vs
                                                                      2Q05
                                                  -------------------------
  Beauty (cosmetics/fragrances/toiletries)         $1,448.8              4%
  Beauty Plus (fashion jewelry/watches/
   apparel/accessories)                               416.0              13
  Beyond Beauty (home products/gift and
   decorative/candles)                                194.1              -5
                                                   --------        --------
     Net Sales                                     $2,058.9              5%
  Other Revenue                                        20.6               1
                                                   --------        --------
     Total Revenue                                 $2,079.5              5%


                           SIX MONTHS ENDED 6/30/06

                               REGIONAL RESULTS


                                     Total
                                    Revenue
                      Total Revenue in Local  Operating    Op.        Active
    $ in Millions          US$      Currency  Profit US$ Margin Units  Reps
                     -------------- -------- ----------- ------ ----- ------
                             % var.  % var.        % var. 2006 % var. % var.
                               vs      vs            vs   per-   vs     vs
                              1H05    1H05          1H05  cent  1H05   1H05
                     -------------- -------- ----------- ------ ----- ------
  North America     $1,233.9    2%    1%      $98.8  -38%  8.0%  -4%   -6%
  Latin America (1)  1,265.7    22    16      165.6   -21  13.1    8    12
  Western Europe,
   Middle East &
   Africa              506.5     1     6       (8.3)    *  -1.6    5     1
  Central & Eastern
   Europe              594.6     4     5      132.8   -21  22.3    -    10
  Asia Pacific         386.7   -11    -8       10.0   -84   2.6  -11   -13
  China                 95.3   -12   -15       (4.9)    *  -5.1  -12     *
  Total from
   Operations        4,082.7     6     5      394.0   -39   9.7    1     4
  Global Expenses          -     -     -      (82.5)  -94     -    -     -
  Consolidated (1)  $4,082.7    6%    5%     $311.5  -48%  7.6%   1%    4%



                             CATEGORY SALES (US$)
                                                         Consolidated
                                                   ------------------------
                                                                   % var. vs
                                                                      1H05
                                                   ------------------------
  Beauty (cosmetics/fragrances/toiletries)         $2,834.1              5%
  Beauty Plus (fashion jewelry/watches/
   apparel/accessories)                               814.5              14
  Beyond Beauty (home products/gift and
   decorative/candles)                                392.7              -4
                                                   --------        --------
     Net Sales                                     $4,041.3              6%
  Other Revenue                                        41.4               2
                                                   --------        --------
     Total Revenue                                 $4,082.7              6%


  * Calculation not meaningful

  (1) The acquisition of our licensee in Colombia favorably impacted revenue
      growth in Latin America for the three and six months ended June 30,
      2006, by 10 points in each period.  The acquisition also favorably
      impacted revenue growth in Consolidated Avon for the three and six
      months ended June 30, 2006, by 3 points in each period.

SOURCE: Avon Products, Inc.

CONTACT: Victor Beaudet, +1-212-282-5344, Sharon Samuel,
+1-212-282-5322, Jennifer Vargas, +1-212-282-5404, or Renee Johansen or Rob
Foresti, +1-212-282-5320, all of Avon Products, Inc.

Web site: http://www.avon.com/
http://www.avoninvestor.com/

Company News On-Call: http://www.prnewswire.com/comp/079575.html

 
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