Fourth-Quarter Beauty Sales Up 11%
Fourth-Quarter Earnings of $.41 Per Share
NEW YORK, Feb. 6 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE:
AVP) today reported that fourth-quarter 2006 total revenue rose 9% year
over year (6% in local currency) to $2.6 billion. Active Representatives
grew 5%, and units increased 2% versus the prior-year quarter.
Growth in sales of Beauty products in the quarter outpaced overall
sales growth, at 11% in dollars and 7% in local currency. These results
reflect growth in all categories, with the largest increases in the
fragrance and color categories.
Fourth-quarter operating profit of $282 million was 5%, or $15 million,
lower than the 2005 level. Operating margin was 10.8%, versus 12.4% in the
prior-year quarter.
Andrea Jung, chairman and CEO, commented, "With 9% revenue growth in
the fourth quarter, we continue to feel good about the progress we are
making against our turnaround plan. Boosted by this strong quarterly
performance, full-year revenue finished ahead of our expectations. The
investments we are making in our business are clearly starting to deliver
results," she said.
The 2006 fourth-quarter operating profit was unfavorably impacted by
approximately $44 million of net costs to implement the current phase of
the company's ongoing restructuring program, the most significant
initiative being a previously announced realignment of Avon's North
American distribution network. The 2005 fourth-quarter operating profit was
unfavorably impacted by approximately $56 million of costs to implement the
initial phase of the company's restructuring program. The 2006 quarter also
included approximately $42 million of incremental costs, related to the
company's previously announced Product Line Simplification program.
In line with the company's turnaround initiative to improve brand
competitiveness, fourth quarter 2006 included a $43 million, or 95%,
increase in advertising, to $89 million. The increase supported new product
introductions, such as Anew Clinical ThermaFirm and superFULL mascara, as
well as Avon China's direct-selling launch.
Fourth-quarter 2006 expenses also included year-over-year increases in
provisions for performance-based compensation and reinstatement of a 401(k)
matching program. Operating profit was reduced by $13 million as a result
of Avon's adoption of stock-option expensing, effective January 1, 2006,
and design changes to share-based compensation plans related to that
adoption.
Interest expense in the fourth quarter 2006 rose significantly year
over year. The increase was due to a higher debt level primarily associated
with the company's share repurchase program, as well as higher interest
rates.
The quarter's effective tax rate of 30.4% was significantly lower than
2005's rate of 35.7%. The 2006 rate benefited from the net favorable impact
of closure of tax years by expiration of the statute of limitations and
audit settlements. Net income in the fourth quarter 2006 was $184 million,
or $.41 per share, compared with $183 million, or $.40 per share, a year
ago.
Fourth-Quarter Regional Highlights
In the North America region, fourth-quarter revenue rose 4% (3% in
local currency) from the prior-year period, and units were 1% higher.
Beauty growth of 2% was positive for the first time in eight quarters.
Active Representatives increased 1%, marking the first time in nine
quarters that this measure has been favorable versus the prior year. The
company credited positive early response from initiatives to increase
Representative ordering activity, as well as an easing in the negative
impact from higher fuel prices, for the improvement in Active
Representatives. Operating profit decreased 2%, as it was negatively
impacted by higher costs to implement restructuring initiatives, a
substantial increase in advertising and incremental inventory obsolescence
expense. The region's operating margin was 8.9%.
In Latin America, fourth-quarter revenue grew 13% (12% in local
currency). The region's revenue benefited from ongoing strength in Brazil,
Avon's second largest market. Brazil's fourth quarter top-line growth
approached 30%, resulting in full-year 2006 revenue of over $1 billion.
Colombia's fourth- quarter revenue growth was approximately 50%, despite
lapping the acquisition of that business in mid-October. The performances
of these two markets more than offset continued softness in Mexico, where
revenue decreased 9%. The region's Active Representatives rose 6% and units
increased 4%. Operating profit was flat with the prior year, as benefits of
higher revenue offset incremental inventory obsolescence expense and other
increased expenses, mainly advertising. Operating margin was 17.2%.
Western Europe, Middle East and Africa continued to achieve solid
revenue growth, driven by increases in nearly all markets, and importantly
in Turkey and the U.K. Fourth-quarter revenue increased 10% (5% in local
currency). Both Active Representatives and units increased 2% versus the
prior-year period. Operating profit decreased 9%, due to incremental
inventory obsolescence expense, and operating margin was 5.2%.
In Central & Eastern Europe, revenue in the fourth quarter rose 17% (8%
in local currency), aided by strong growth in fragrances and a return to
growth in color cosmetics, up nearly 20%, across the region. Russia's
fourth quarter top-line growth was over 20%, resulting in full-year 2006
revenue of over $500 million. The region's Active Representatives grew 10%,
while units sold decreased 1%. Operating profit rose 7% year over year, and
operating margin was 23.2%. Operating profit was unfavorably impacted by
inventory obsolescence and advertising expenses.
Asia Pacific revenue was 2% lower in the quarter (6% lower in local
currency). Active Representatives decreased 7% and units declined 6%. The
region continued to be unfavorably impacted by a decline in Japan as well
as the first-quarter 2006 closing of Indonesian operations. Japan's fourth-
quarter revenue declined 13% year over year, compared with a drop of nearly
30% in 2006's first half. Japan's results reflect early response to actions
to improve direct selling and recalibrate the level of its direct mailings.
The region's operating profit was 11% lower year over year, largely due to
higher inventory obsolescence and the revenue decline. Operating margin was
5.2%.
Revenue in China grew 28% (24% in local currency), reflecting further
expansion of the company's direct-selling business. The exit of company-run
store counters in early 2006 had a negative eight-point impact on the
quarter's revenue growth. At year end, Avon China had over 350,000 licensed
Sales Promoters registered with the government and was engaged in training
these Sales Promoters to become Active Representatives within Avon's
direct- selling business. Units were 23% higher versus the prior year in
the fourth quarter. China reduced its operating loss to $2.9 million from
fourth-quarter 2005's loss of $7.0 million. Operating margin was (4.3)%.
Total global expenses rose 73%, largely due to higher
compensation-related expense as well as costs to implement restructuring
initiatives.
Full-Year Results
For full-year 2006, Avon reported that total revenue grew 8% (6% in
local currency), to a record $8.8 billion, versus $8.1 billion in 2005, and
sales of Beauty products increased in line with overall revenue growth.
Active Representatives grew 5% and units were 2% higher. Both years
included significant costs to implement restructuring, with those costs
totaling $229 million in 2006 and $56 million in 2005. Additionally, 2006
was impacted by approximately $81 million of incremental costs, related to
the company's previously announced Product Line Simplification program.
Avon said it spent $249 million on advertising in 2006, 83% more than in
2005, far exceeding its original target of a 50% increase for the year.
2006 net income was $478 million compared with $848 million in 2005, and
2006 earnings per share were $1.06, 41% lower than earnings of $1.81 per
share in the prior year.
Despite 2006 being a transition year in the company's turnaround
program, cash flow from operations totaled $796 million versus $896 million
in 2005. Share repurchases in 2006 totaled $355 million. In 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 in late 2005.
Andrea Jung, chairman and CEO, commented, "We began an aggressive
attack of Avon's cost structure in 2006, with the goal of achieving in
excess of $300 million in savings by 2009. Our early actions delivered more
than $100 million in benefits for the year, all of which was invested to
fuel the topline. Late in the year, we launched two additional strategic
initiatives, Product Line Simplification and a Strategic Sourcing
Initiative, with the potential to contribute significantly higher benefits
beyond our earlier actions. These additional benefits will enable us to
invest even more going forward," Ms. Jung added.
"As we move into 2007, we are still in the early years of our
multi-year turnaround," she said. "We are confident that our plan is the
right one, and we remain committed to restoring Avon to sustainable
growth."
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
6555775). The call will be webcast live at http://www.avoninvestor.com and can be
accessed or downloaded from that site for a period of two weeks.
Additionally, the company will host a meeting on Thursday, February 15,
2007, to update investors on its major strategic initiatives. That meeting
also will be webcast live from http://www.avoninvestor.com beginning at 9:00 A.M.
Eastern Time.
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, product line simplification, strategic sourcing
initiative, 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;
* the costs associated with our product line simplification program;
* our ability to achieve growth objectives, particularly in our largest
markets and new and emerging markets;
* 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 acts of terrorism or war, natural
disasters, pandemic situations and large scale power outages;
* 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
(Unaudited)
(In millions, except per share data)
Three months ended Twelve months ended
December 31 Percent December 31 Percent
2006 2005 Change 2006 2005 Change
Net sales $2,597.9 $2,374.7 9% $8,677.3 $8,065.2 8%
Other revenue 24.7 23.5 86.6 84.4
Total revenue 2,622.6 2,398.2 9% 8,763.9 8,149.6 8%
Cost of sales (1) 1,063.6 980.6 3,434.6 3,133.7
Selling, general and
administrative
expenses (1) (2) 1,276.6 1,120.2 4,567.9 3,866.9
Operating profit 282.4 297.4 -5% 761.4 1,149.0 -34%
Interest expense 25.3 20.3 99.6 54.1
Interest income (14.5) (10.9) (55.3) (37.3)
Other expense, net 5.7 0.4 13.6 8.0
Total other
expenses 16.5 9.8 57.9 24.8
Income before taxes
and minority interest 265.9 287.6 -8% 703.5 1,124.2 -37%
Income taxes (3) 80.8 102.6 223.4 269.7
Income before minority
interest 185.1 185.0 480.1 854.5
Minority interest (1.0) (1.8) (2.5) (6.9)
Net income $184.1 $183.2 0% $477.6 $847.6 -44%
Earnings per share:
Basic $.42 $.40 5% $1.07 $1.82 -41%
Diluted $.41 $.40 2% $1.06 $1.81 -41%
Average shares
outstanding:
Basic 443.24 455.36 447.40 466.28
Diluted 445.48 456.51 449.16 469.47
(1) For the three and twelve months ended December 31, 2006, costs to
implement restructuring initiatives impacted cost of sales by $0.5 and
($0.3), respectively, and selling, general and administrative expenses
by $43.2 and $229.1, respectively.
(2) For the twelve months ended December 31, 2006, selling, general and
administrative expenses included $21.0 associated with the resolution
of a long-standing dispute regarding value-added tax in the U.K.
(3) For the three months ended December 31, 2006, income taxes were
impacted by a reduction in tax expense of $14.3, primarily from the
net favorable impact of the closure of tax years by expiration of the
statute of limitations and audit settlements. For the twelve months
ended December 31, 2006, income taxes were impacted by a reduction in
tax expense of $18.6, primarily from the net favorable impact of the
closure of tax years by expiration of the statute of limitations and
audit settlements as well as tax refunds, partially offset by the tax
impact from the repatriation of international earnings. 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.
AVON PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
December 31 December 31
2006 2005
Cash, including cash equivalents $1,198.9 $1,058.7
Accounts receivable, net 700.4 634.1
Inventories 900.3 801.7
Prepaid expenses and other 534.8 424.5
Total current assets 3,334.4 2,919.0
Property, plant and equipment, net 1,100.2 1,050.8
Other assets 803.6 791.6
Total assets 5,238.2 4,761.4
Debt maturing within one year 615.6 882.5
Accounts payable 655.8 538.2
Other current liabilities 1,278.7 1,079.0
Total current liabilities 2,550.1 2,499.7
Long-term debt 1,170.7 766.5
Other non-current liabilities 727.0 701.0
Total shareholders' equity 790.4 794.2
Total liabilities and shareholders'
equity $5,238.2 $4,761.4
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Twelve Months Ended
December 31
2006 2005
Cash Flows from Operating Activities:
Net income $477.6 $847.6
Depreciation and amortization 159.6 139.6
Provision for doubtful accounts 144.7 135.6
Provision for obsolescence 173.3 83.9
Non-cash restructuring charges 8.0 21.2
Share-based compensation 62.9 10.1
Deferred income taxes (110.7) (31.7)
Other 8.1 (21.4)
Changes in assets and liabilities:
Accounts receivable (188.3) (163.5)
Inventories (233.9) (152.6)
Prepaid expenses and other (18.9) (2.7)
Accounts payable and accrued
liabilities 323.4 126.4
Income and other taxes 40.3 (30.2)
Non-current assets and liabilities (50.0) (66.8)
Net cash provided by operating
activities 796.1 895.5
Cash Flows from Investing Activities:
Capital expenditures (174.8) (206.8)
Disposal of assets 16.4 30.3
Other investing activities (49.5) (166.6)
Net cash used by investing activities (207.9) (343.1)
Cash Flows from Financing Activities:
Cash dividends (317.6) (313.8)
Total debt, net change 135.5 753.3
Repurchase of common stock (355.1) (728.0)
Proceeds from exercise of stock
options, net of taxes 40.6 61.4
Other financing activities 6.2 0.4
Net cash used by financing activities (490.4) (226.7)
Effect of exchange rate changes on
cash and equivalents 42.4 (36.6)
Net increase in cash and equivalents $140.2 $289.1
AVON PRODUCTS, INC. - SUPPLEMENTAL SCHEDULE
(Unaudited)
THREE MONTHS ENDED 12/31/06
REGIONAL RESULTS
Total Total Operating
Revenue Revenue Profit Op. Active
US$ in Local US$ Margin Units Reps
$ in Millions Currency
% % % % %
var. var. var. 2006 var. var.
vs vs vs percent vs vs
4Q05 4Q05 4Q05 4Q05 4Q05
North America $749.9 4% 3% $66.4 -2% 8.9% 1% 1%
Latin America (1) 770.2 13 12 132.8 0 17.2 4 6
Western Europe,
Middle East & Africa 355.9 10 5 18.6 -9 5.2 2 2
Central & Eastern Europe 456.6 17 8 106.1 7 23.2 -1 10
Asia Pacific 222.8 -2 -6 11.6 -11 5.2 -6 -7
China 67.2 28 24 (2.9) 59 -4.3 23 *
Total from Operations 2,622.6 9 6 332.6 2 12.7 2 5
Global Expenses - - - (50.2) -73 - - -
Consolidated (1) $2,622.6 9% 6% $282.4 -5% 10.8% 2% 5%
CATEGORY SALES (US$)
Consolidated
% var.
vs
4Q05
Beauty (cosmetics/fragrances/skin
care/toiletries) $1,761.0 11%
Beauty Plus (fashion jewelry/
watches/apparel/accessories) 479.9 6
Beyond Beauty (home products/gift and
decorative products) 357.0 7
Net Sales $2,597.9 9%
Other Revenue 24.7 5
Total Revenue $2,622.6 9%
TWELVE MONTHS ENDED 12/31/06
REGIONAL RESULTS
Total Total Operating
Revenue Revenue Profit Op. Active
US$ in Local US$ Margin Units Reps
$ in Millions Currency
% % % % %
var. var. var. 2006 var. var.
vs vs vs percent vs vs
05 05 05 05 05
North America $2,554.0 2% 1% $181.6 -36% 7.1% -4% -3%
Latin America (1) 2,743.4 21 17 424.0 -6 15.5 8 11
Western Europe,
Middle East & Africa 1,123.7 6 6 (17.8) * -1.6 3 2
Central & Eastern Europe 1,320.2 8 4 296.7 -11 22.5 -1 10
Asia Pacific 810.8 -7 -6 42.5 -59 5.2 -9 -10
China 211.8 3 0 (10.8) * -5.1 1 *
Total from Operations 8,763.9 8 6 916.2 -26 10.5 2 5
Global Expenses - - - (154.8) -66 - - -
Consolidated (1) $8,763.9 8% 6% $761.4 -34% 8.7% 2% 5%
CATEGORY SALES (US$)
Consolidated
% var.
vs 05
Beauty (cosmetics/fragrances/skin
care/toiletries) $6,028.8 8%
Beauty Plus (fashion jewelry/
watches/apparel/accessories) 1,676.6 10
Beyond Beauty (home products/gift and
decorative products) 971.9 2
Net Sales $8,677.3 8%
Other Revenue 86.6 3
Total Revenue $8,763.9 8%
* Calculation not meaningful
(1) The acquisition of our licensee in Colombia favorably impacted revenue
growth in Latin America for the three and twelve months ended December
31, 2006, by 2 and 8 points, respectively. The acquisition also
favorably impacted revenue growth in Consolidated Avon for the twelve
months ended December 31, 2006, by 3 points.
SOURCE Avon Products, Inc.
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http://www.avoninvestor.com http://www.avoncompany.com
http://www.prnewswire.com/comp/079575.html /
CONTACT:
Investors: Renee Johansen or Rob Foresti,
+1-212-282-5320, or Media: Victor Beaudet, +1-212-282-5344,
Sharon Samuel, +1-212-282-5322, Jennifer Vargas, +1-212-282-5404,
all for Avon Products, Inc.
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