Revenue Up 4%, 3% in Local Currency
Results Include $56 Million in Implementation Costs for First Phases of
Restructuring
Company Reports Full-Year Earnings of $1.81 per Share
NEW YORK, Feb. 2 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE: AVP)
today reported that earnings in the fourth quarter 2005 were $.40 per share,
compared with 2004 fourth-quarter earnings of $.61 per share. The company
said the 2005 quarter included a negative impact of $.10 per share to
implement early phases of its previously announced restructuring plans.
Avon said that revenue in the fourth quarter 2005 rose 4% (3% in local
currency) to $2.4 billion. Active Representatives grew 7% and units increased
5% versus the prior year. Total Beauty sales in the quarter rose 5% (4% in
local currency).
Operating profit decreased 28% to $297 million, due to significant costs
of $56 million associated with the early phases of the company's previously
announced restructuring initiatives. Specifically, Avon said that the quarter
included costs associated with an organizational downsizing in all regions and
at the corporate level to reduce layers of management to move closer to its
markets, Representatives and customers. Additionally, several regions
commenced other cost-cutting initiatives. Higher price discounting combined
with higher operating expenses and unfavorable product mix also negatively
impacted profits.
Operating margin was 12.4% versus 17.8% in the prior year. Interest
expense more than doubled, reflecting a higher level of borrowing to fund the
company's share repurchase program. The quarter's effective tax rate of 35.7%
was significantly higher than that of the 2004 quarter due to unmatched one-
time tax benefits in the 2004 quarter, as well as the negative impacts of
certain restructuring costs and unfavorable country mix in the 2005 quarter.
Net income in the fourth quarter 2005 was $183 million, compared with $289
million a year ago.
Fourth-Quarter Regional Highlights
In the North America region, revenue in the fourth quarter declined 6% (7%
in local currency), and both units and active Representatives were 4% lower
than the prior year. Operating profit decreased 20%, and the operating margin
was 12.4%. These results were driven primarily by the performance of the
company's U.S. unit.
In the U.S., fourth-quarter revenue declined 7%, with units and active
Representatives in the quarter down 5% and 4%, respectively. Sales of Beauty
products were 9% lower year over year, with decreases in all categories.
Beauty Plus sales increased 8%, while Beyond Beauty sales declined 21%, in
part reflecting ongoing, planned category repositioning. U.S. operating
profit was 25% lower year over year due to the revenue decline, unfavorable
product mix and $7 million in costs associated with early stages of the
company's restructuring plans. Operating margin was 12.4%.
In Europe, revenue in the fourth quarter rose 2% (6% in local currency)
and active Representatives grew 6%. Units increased 7% versus the year-ago
period. Central and Eastern Europe, which the company will break out as a
separate reporting unit beginning in first quarter 2006, had 6% higher revenue
(8% in local currency) versus the prior-year quarter. Also in the quarter,
Russia, the region's largest market, had low-teens local-currency revenue
growth and U.K. local-currency revenues were flat year over year. The
region's operating profit declined 26% due to unfavorable pricing and product
mix, ERP implementation costs and $13 million in costs to implement early
stages of the company's restructuring plans. Operating margin was 19.6%.
In Latin America, fourth-quarter revenue grew 27% (17% in local currency)
as the region benefited from the late-2005 acquisition of a licensee in
Colombia, which added seven points of growth. In addition, sizable revenue
increases in Brazil, Venezuela and Argentina compensated for flat revenue
(down 5% in local currency) in Mexico, another of the region's larger markets.
The region's active Representatives rose 15% and units increased 13%.
Operating profit rose 10%, and included $3 million in costs to implement
organization restructuring initiatives. The region's operating margin was
22.4%.
Asia Pacific revenue was 7% lower in the quarter (5% in local currency)
and units declined 4%, as the region's performance continued to be impacted by
revenue declines in China and Japan. China, which the company will break out
as a separate reporting unit beginning in first quarter 2006, saw revenue
decline 22% (24% in local currency) as Avon's Beauty Boutique owners in that
country continued to place smaller orders with the company in connection with
the anticipated resumption of direct selling.
Active Representatives in the Asia Pacific region decreased 4% in the
quarter. Operating profit was 72% lower versus the year-ago quarter due to
the region's revenue decline and $22 million of costs associated with the
company's restructuring program, mainly for closure of Avon's operations in
Indonesia. Operating margin was 5.6%.
Global expenses rose 18% largely due to $11 million of costs for
organization downsizing.
Full-year Results
For full-year 2005, Avon reported that earnings per share increased 2%, to
$1.81 versus $1.77 per share in the prior year. Revenue grew 5% (2% in local
currency) in 2005, to a record $8.1 billion, versus $7.7 billion in 2004, and
sales of Beauty products increased 6%, outpacing overall growth. Active
Representatives grew 6% and units were 3% higher. Net income was $848 million,
including the restructuring implementation costs incurred in the fourth
quarter, compared with $846 million in 2004.
Cash flow from operations rose to a record $896 million for the year.
During 2005, Avon spent $728 million to repurchase shares, completing both a
five-year $1 billion authorization begun in 2000 and an incremental $500
million share repurchase initiative launched August 2, 2005.
Andrea Jung, chairman and CEO commented, "With a challenging 2005 behind
us, we are now aggressively moving forward with the turnaround plan we
outlined at our investor update meeting last November. We are aggressively
addressing costs through our restructuring program, while at the same time
stepping up the level of investment behind our brands with innovation and a
planned 50% increase in advertising spend in 2006," she added.
"These efforts to return Avon's business to sustainable growth are our
primary focus going forward. Our organization is committed to this task and
aligned behind our turnaround strategies," Ms. Jung concluded.
Outlook
For the full-year 2006, Avon continues to project that revenue will be
flat to up slightly from 2005's base of $8.1 billion. As previously
announced, the company stated that it expects to incur further costs that will
have a significant negative impact on earnings throughout the year as it moves
forward with additional initiatives under its turnaround plan.
Avon will conduct a conference call at 9:00 A.M. today to discuss the
quarter and full-year results. The dial-in number for the call is (973) 528-
0014 (entry code 2272). 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 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:
general economic and business conditions in our markets, including social,
economic, political and competitive uncertainties in Latin America, Asia
Pacific, Central and Eastern Europe and the Middle East; our ability to
implement our business, cash management and tax strategies and our multi-year
restructuring initiatives 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 anticipated
cost savings and our profitability and growth targets, particularly in our
largest markets; our ability to implement appropriate product mix and pricing
strategies; the impact of changes in consumer spending patterns and
preferences, particularly given the global nature of our business; our ability
to replace lost sales attributable to the repositioning of the U.S. Beyond
Beauty business; the impact of substantial currency fluctuations on the
results of our foreign operations and the cost of sourcing foreign products
and the success of our foreign currency hedging and risk management
strategies; our ability to implement our Sales Leadership program globally, to
increase Representative productivity and recruit Representatives; our ability
to implement our enterprise resource planning project; the impact of possible
pension funding obligations and increased pension expense on our cash flow and
results of operations; the impact of stock option expense pursuant to
Statement of Financial Accounting Standards No. 123(R); our ability to
successfully transition our business in China in connection with the
anticipated resumption of direct selling in that market; the effect of legal,
regulatory and tax proceedings, as well as restrictions imposed on us, our
operations or our Representatives by foreign governments; the risk of an
adverse outcome in our material pending litigations; our ability to
successfully identify new business opportunities; our access to financing; and
our ability to attract and retain key personnel and executives. Additional
information identifying such factors is contained in our Annual Report on Form
10-K for the year ended December 31, 2004, 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 Twelve months ended Percent
December 31 Change December 31 Change
2005 2004 2005 2004
Net sales $2,374.7 $2,285.7 4% $8,065.2 $7,656.2 5%
Other revenue 23.5 24.8 84.4 91.6
Total revenue 2,398.2 2,310.5 4% 8,149.6 7,747.8 5%
Cost of
sales(1)(2) 980.6 912.7 3,133.7 2,932.5
Marketing,
distribution and
administrative
expenses(1)(2) 1,120.2 986.5 3,866.9 3,586.3
Operating
profit 297.4 411.3 -28% 1,149.0 1,229.0 -7%
Interest expense 20.3 9.7 54.1 33.8
Interest income (10.9) (6.7) (37.3) (20.6)
Other expense,
net (3) 0.4 18.9 8.0 28.3
Total other
expenses 9.8 21.9 24.8 41.5
Income before taxes
and minority
interest 287.6 389.4 -26% 1,124.2 1,187.5 -5%
Income taxes (4) 102.6 98.1 269.7 330.6
Income before
minority
interest 185.0 291.3 854.5 856.9
Minority interest (1.8) (2.5) (6.9) (10.8)
Net income $183.2 $288.8 -37% $847.6 $846.1 0%
Earnings per share:
Basic $.40 $.61 -34% $1.82 $1.79 2%
Diluted $.40 $.61 -34% $1.81 $1.77 2%
Average shares
outstanding:
Basic 455.36 472.26 466.28 472.35
Diluted 456.51 477.25 469.47 477.96
Notes:
(1) For the three months and year ended December 31, 2005, costs to
implement restructuring initiatives impacted cost of sales by $8.4 and
Marketing, distribution and administrative expenses by $48.1.
Marketing, distribution and administrative expenses for the three
months and year ended December 31, 2004, includes income of $3.2
associated with the reversal of previously recorded restructuring
reserves.
(2) For the three months and year ended December 31, 2004, certain U.S.
expenses were reclassified from operating expenses to cost of sales.
These reclassifications did not affect operating profit.
(3) For the three months ended December 31, 2005 and 2004, Other expense,
net includes foreign exchange losses of $0.3 and $3.6, respectively.
For the year ended December 31, 2005 and 2004, Other expense, net
includes foreign exchange losses of $5.8 and $9.5, respectively. The
year ended December 31, 2005, also includes gains on the sale of
equity securities of $2.5. The three months and year ended December
31, 2004, also includes $13.7 of expense for a write down of
investments in equity securities.
(4) For the year ended December 31, 2005, income taxes were impacted by a
reduction in tax expense of $96.4, primarily 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.
For the three months and year ended December 31, 2004, income taxes
were impacted by a reduction in tax expense of $22.6 and $59.1,
respectively, due to international cash management and tax strategies
and foreign tax credits benefited.
AVON PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
December 31 December 31
2005 2004
Cash, including cash equivalents $1,058.7 $769.6
Accounts receivable, net 634.1 599.1
Inventories 801.7 740.5
Prepaid expenses and other 426.4 397.2
Total current assets 2,920.9 2,506.4
Property, plant and equipment, net 1,050.8 1,014.8
Other assets 791.6 626.9
Total assets 4,763.3 4,148.1
Debt maturing within one year 882.5 51.7
Accounts payable 538.2 490.1
Other current liabilities 1,080.9 1,067.7
Total current liabilities 2,501.6 1,609.5
Long-term debt 766.5 866.3
Other non-current liabilities 701.0 722.1
Total shareholders' equity 794.2 950.2
Total liabilities and shareholders'
equity $4,763.3 $4,148.1
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Twelve Months Ended
December 31
2005 2004
Cash Flows from Operating Activities:
Net income $847.6 $846.1
Depreciation and amortization 139.6 133.7
Provision for doubtful accounts 135.6 140.0
Provision for obsolescence 73.5 65.5
Deferred income taxes (2.5) (55.0)
Asset impairment 21.2 -
Other (11.3) 21.2
Changes in assets and liabilities:
Accounts receivable (163.5) (164.6)
Inventories (142.2) (115.3)
Prepaid expenses and other (11.0) (55.8)
Accounts payable and accrued liabilities 126.4 96.9
Income and other taxes (21.9) 10.3
Non-current assets and liabilities (96.0) (40.4)
Net cash provided by operating activities 895.5 882.6
Cash Flows from Investing Activities:
Capital expenditures (206.8) (250.1)
Disposal of assets 30.3 19.6
Other investing activities (166.6) (48.9)
Net cash used by investing activities (343.1) (279.4)
Cash Flows from Financing Activities:
Cash dividends (313.8) (269.7)
Total debt, net change 753.3 (195.8)
Repurchase of common stock (728.0) (224.2)
Proceeds from exercise of stock options,
net of taxes 61.4 122.3
Other financing activities 0.4 0.4
Net cash used by financing activities (226.7) (567.0)
Effect of exchange rate changes on
cash and equivalents (36.6) 39.4
Net increase in cash and equivalents $289.1 $75.6
AVON PRODUCTS, INC. - SUPPLEMENTAL SCHEDULE
FOURTH QUARTER 2005 - THREE MONTHS ENDED 12/31/05
REGIONAL RESULTS
Total
Revenue
$ in Total in Local Operating Op. Active
Millions Revenue US$ Currency Profit US$ Margin Units Reps
------------- -------- ------------ ------ ----- ------
%var. %var. %var. 2005 %var. %var.
vs vs vs per- vs vs
4Q04 4Q04 4Q04 cent 4Q04 4Q04
------------- -------- ------------ ------ ----- ------
North
America $724.3 -6% -7% $90.0 -20% 12.4% -4% -4%
US 609.2 -7 -7 75.7 -25 12.4 -5 -4
International(1) 1,673.9 9 8 307.5 -20 18.4 8 9
Latin
America(1) 680.3 27 17 152.2 10 22.4 13 15
Europe 712.8 2 6 139.7 -26 19.6 7 6
Asia Pacific 280.8 -7 -5 15.6 -72 5.6 -4 -4
Total from
Operations(1) 2,398.2 4 3 397.5 -20 16.6 5 7
Global Expenses - - - (100.1) -18 - - -
Consolidated(1) $2,398.2 4% 3% $297.4 -28% 12.4% 5% 7%
CATEGORY SALES (US$)
Consolidated
% var.
vs 4Q04
Beauty
(cosmetics/fragrances/toiletries) $1,595.3 5%
Beauty Plus
(fashion jewelry/watches/apparel/accessories) 429.5 8
Beyond Beauty
(home products/gift and decorative/candles) 349.9 -7
Net Sales $2,374.7 4%
Other Revenue 23.5 -5
Total Revenue $2,398.2 4%
FOURTH QUARTER 2005 - TWELVE MONTHS ENDED 12/31/05
REGIONAL RESULTS
Total
Revenue
$ in Total in Local Operating Op. Active
Millions Revenue US$ Currency Profit US$ Margin Units Reps
------------- -------- ------------ ------ ----- ------
%var. %var. %var. 2005 %var. %var.
vs vs vs per- vs vs
FY04 FY04 FY04 cent FY04 FY04
------------- -------- ------------ ------ ----- ------
North
America $2,510.5 -5% -5% $353.5 -14% 14.1% -6% -3%
US 2,140.7 -6 -6 314.6 -17 14.7 -7 -3
International(1) 5,639.1 10 6 1,116.4 -2 19.8 5 8
Latin
America(1) 2,272.6 17 10 516.0 8 22.7 8 11
Europe 2,291.4 9 7 458.9 -3 20.0 5 9
Asia
Pacific 1,075.1 0 -1 141.5 -27 13.2 -1 2
Total from
Operations(1) 8,149.6 5 2 1,469.9 -5 18.0 3 6
Global Expenses - - - (320.9) 2 - - -
Consolidated(1) $8,149.6 5% 2% $1,149.0 -7% 14.1% 3% 6%
CATEGORY SALES (US$)
Consolidated
% var.
vs FY04
Beauty
(cosmetics/fragrances/toiletries) $5,578.6 6%
Beauty Plus
(fashion jewelry/watches/apparel/accessories) 1,471.6 8
Beyond Beauty
(home products/gift and decorative/candles) 1,015.0 -3
Net Sales $8,065.2 5%
Other Revenue 84.4 -8
Total Revenue $8,149.6 5%
(1) During the fourth quarter of 2005 we acquired our licensee in
Colombia, which contributed $38.9 in revenue to the three
months and year ended December 31, 2005.
SOURCE Avon Products, Inc.
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Related links:
http://www.avoncompany.com
http://www.avoninvestor.com
Company News On-Call:
http://www.prnewswire.com/comp/079575.html
CONTACT:
MEDIA: Victor Beaudet, +1-212-282-5344, or
Sharon Samuel, +1-212-282-5322, INVESTORS: Renee Johansen or Rob
Foresti, +1-212-282-5320, all for Avon Products, Inc.
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