First-Quarter Beauty Sales Up 10%
First-Quarter Earnings of $.34 Per Share
NEW YORK, May 1 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE:
AVP) today reported that first-quarter 2007 total revenue grew 9% year over
year (6% in local currency) to $2.2 billion with all six operating regions
contributing to the company's revenue growth. Net income increased in the
first quarter 2007, to $150 million, or $.34 per share, compared with $56
million, or $.12 per share, a year ago.
Andrea Jung, chairman and CEO, commented, "We are pleased with the
strength and geographic balance of our first-quarter performance. While
still in the midst of our multi-year turnaround, we are making good
progress against all points of our plan."
Active Representatives rose 4%, and units sold increased 4% versus the
prior-year quarter. Sales of Beauty products recorded a third-consecutive
quarter of double-digit growth, increasing 10% (7% in local currency), led
by personal care up 17%, fragrance up 12%, color cosmetics up 9% and skin
care up 6%.
Avon said that in the first quarter the company increased advertising
to $71 million, or 80% above the level of a year ago, to fund the launch of
"Hello Tomorrow," Avon's first global brand campaign as well as new product
introductions such as Anew Alternative Intensive Eye Cream and Avon Color
Ultra Color Rich Lipstick.
The company also invested approximately $15 million incrementally to
enhance the value proposition for its Representatives through continued
roll- out of the Sales Leadership program, increased incentives, web
enablement and distribution of free sales brochures to Representatives.
"We continue to significantly elevate our investment levels against
both our brand and our channel," said Jung, "and we are seeing strong
paybacks as a result. Fueling these investments are savings from the many
restructuring initiatives that we have undertaken and that continue to be
an ongoing part of our turnaround program."
First-quarter operating profit of $238 million rose 176%, or $152
million, from the 2006 level. Operating profit in the quarter was
unfavorably impacted by approximately $10 million of costs to implement
previously announced initiatives under the company's ongoing restructuring
program. The 2007 quarter also included approximately $17 million of
incremental costs, related to the company's previously announced Product
Line Simplification (PLS) program. In 2006, first-quarter operating profit
was unfavorably impacted by approximately $120 million of costs to
implement the restructuring program, and approximately $20 million of
incremental inventory write-offs primarily related to the company's
decision to discontinue the sale of certain heavily discounted excess
products. Operating margin was 10.9%, versus 4.3% in the prior-year
quarter.
The quarter's effective tax rate of 32.4% rose from 2006's rate of
20.3%. The lower 2006 rate resulted primarily from favorable tax audit
settlements, which more than offset the adverse impact of restructuring
activity on the effective tax rate.
At quarter end, Avon's total debt had increased $308 million from the
year-end level, and cash had decreased $77 million. Net cash used by
operations was $160 million through three months of 2007 compared with $101
million of cash provided by operations in the same period of 2006. The
year- over-year change was due to substantially higher restructuring
accruals in 2006; and in 2007, higher incentive-based compensation
payments, timing of vendor payments and higher retirement-related plan
contributions. Looking forward, the company expects full-year 2007 cash
flow from operations to exceed that of 2006.
The company continued to be active in repurchasing its shares in the
first quarter of 2007, with repurchases totaling $130 million.
First-Quarter Regional Highlights
In the North America region, first-quarter revenue rose 3% (3% in local
currency) from the prior-year period, with growth in all markets. Units
sold were 5% higher and Active Representatives were flat with the prior
year. Operating profit more than doubled, primarily due to substantial
costs to implement restructuring and higher inventory write-offs in the
base year. The region's operating margin was 12.2%.
In Latin America, first-quarter revenue grew 7% (6% in local currency).
The region's revenue benefited particularly from low-teens growth in Brazil
and increases in the range of 20% in both Venezuela and Colombia. These
revenue gains offset ongoing softness in Mexico, where revenue decreased
9%. The region's Active Representatives rose 2% and units sold were up 3%.
Operating profit increased 29% versus the prior year, primarily due to
substantial costs to implement restructuring in the base year. Latin
America's operating margin was 13.5%.
Western Europe, Middle East & Africa again achieved solid revenue
growth, 17% (9% in local currency), due to continued strength in Turkey,
where revenue rose over 30%, and the U.K., where revenue increased in the
high teens. The region's Active Representatives rose 5% and units sold
increased 11%, versus the prior-year period. Operating profit was $14
million, versus a loss of $34 million in the 2006 quarter, primarily due to
substantial costs to implement restructuring in the base year. Operating
margin was 5.0%.
In Central & Eastern Europe, revenue in the first quarter rose 17% (9%
in local currency), aided by continued strong growth in fragrances and
color cosmetics, and by Russia, where revenue expanded over 30%. The
region's Active Representatives grew 8%, while units sold increased 1%.
Operating profit rose 25% year over year, and operating margin was 21.6%.
Operating profit in this region benefited somewhat from lower costs to
implement restructuring initiatives.
Asia-Pacific revenue increased 5% (2% in local currency) led by
high-teens revenue growth in the Philippines. Japan's performance continued
to improve with revenue in the quarter approximately flat with that of the
prior year. The region's Active Representatives were 2% higher and units
sold rose 2%. The Asia-Pacific region had operating profit of $21 million,
versus a loss of $2 million in the 2006 quarter, primarily due to
substantial costs to implement restructuring initiatives and higher
inventory write-offs in the base year. Operating margin was 10.5%.
Revenue in China grew 44% (39% in local currency), reflecting further
expansion of the company's direct-selling business, which contributed over
one half of the region's revenues in the quarter. As of the end of March,
Avon China had over 507,000 licensed Sales Promoters registered with the
government, approximately 168,000 of whom fit Avon's definition of an
Active Representative. Units sold were 15% higher versus the prior year in
the first quarter. China had operating profit of $3 million compared with
an operating loss of $1 million in the prior-year quarter, in part due to
substantial costs to implement restructuring initiatives in the base year.
Operating margin was 4.3%.
Total global expenses decreased 6%, due primarily to substantial
restructuring-related expenses in the base year.
Avon will conduct a conference call at 10:00 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
5046587). 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.
Avon, the company for women, is a leading global beauty company, with
almost $9 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,"
"may," "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, zero overhead growth and cash management, tax, foreign
currency hedging and risk management strategies;
-- our ability to realize the anticipated benefits from our multi-year
restructuring initiatives or other strategic initiatives on the time
schedules or in the amounts that we expect, and our plans to invest
these anticipated benefits ahead of future growth;
-- the possibility of business disruption in connection with our multi-
year restructuring initiatives or other strategic initiatives;
-- our ability to realize sustainable growth from our investments in our
brand and the direct selling channel;
-- 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 risk of product or ingredient shortages resulting from our
concentration of sourcing in fewer suppliers;
-- the quality, safety and efficacy of our products;
-- the success of our research and development activities;
-- 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, to improve Internet-based tools for our Representatives,
and to compete with other direct selling organizations to recruit,
retain and service Representatives;
-- the impact of the seasonal nature of our business, 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, 2006,
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 Percent
March 31 Change
---------------------- -------
2007 2006
--------- ---------
Net sales $2,163.3 $1,982.4 9%
Other revenue 22.0 20.8
--------- ---------
Total revenue 2,185.3 2,003.2 9%
Cost of sales (1) 836.7 779.7
Selling, general and
administrative expenses (1)(2) 1,110.8 1,137.3
--------- ---------
Operating profit 237.8 86.2 176%
--------- ---------
Interest expense (26.5) (26.5)
Interest income 12.3 13.2
Other expense, net (0.6) (1.6)
--------- ---------
Total other expenses (14.8) (14.9)
Income before taxes and minority interest 223.0 71.3 213%
Income taxes (3) (72.4) (14.5)
--------- ---------
Income before minority interest 150.6 56.8
Minority interest (0.6) (0.6)
--------- ---------
Net income $150.0 $56.2 167%
========= =========
Earnings per share:
Basic $.34 $.12 183%
========= =========
Diluted $.34 $.12 183%
========= =========
Average shares outstanding:
Basic 440.61 450.75
Diluted 443.76 452.62
(1) For the three months ended March 31, 2007, costs to implement
restructuring initiatives impacted cost of sales by $0.7, and selling,
general and administrative expenses by $9.0. For the three months
ended March 31, 2006, costs to implement restructuring initiatives
impacted cost of sales by ($0.5) and selling, general and
administrative expenses by $120.6.
(2) For the three months ended March 31, 2007 and 2006, selling, general
and administrative expenses included advertising expenses of $71.3 and
$39.6, respectively.
(3) For the three months ended March 31, 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.
AVON PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
March 31 Dec 31
2007 2006
---------- ---------
Cash, including cash equivalents $1,122.1 $1,198.9
Accounts receivable, net 669.5 700.4
Inventories 984.1 900.3
Prepaid expenses and other 558.6 534.8
---------- ---------
Total current assets 3,334.3 3,334.4
Property, plant and equipment, net 1,095.4 1,100.2
Other assets 835.7 803.6
---------- ---------
Total assets 5,265.4 5,238.2
========== =========
Debt maturing within one year (1) 923.9 615.6
Accounts payable 597.0 655.8
Other current liabilities 1,037.4 1,253.8
---------- ---------
Total current liabilities 2,558.3 2,525.2
Long-term debt 1,170.2 1,170.7
Other non-current liabilities 764.6 751.9
Total shareholders' equity 772.3 790.4
---------- ---------
Total liabilities and shareholders' equity $5,265.4 $5,238.2
========== =========
(1) Primarily consists of commercial paper.
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three Months Ended
March 31
-------------------------
2007 2006
-------- --------
Cash Flows from Operating Activities:
Net income $150.0 $56.2
Depreciation and amortization 42.7 40.0
Provision for doubtful accounts 37.1 31.8
Provision for obsolescence 32.9 42.9
Asset write-off restructuring charges 0.2 (0.6)
Share-based compensation 15.9 15.5
Deferred income taxes 9.6 (23.5)
Other 3.7 0.9
Changes in assets and liabilities:
Accounts receivable 0.4 11.5
Inventories (110.2) (98.8)
Prepaid expenses and other (46.6) (11.8)
Accounts payable and accrued liabilities (195.5) 97.3
Income and other taxes 10.3 (40.9)
Non-current assets and liabilities (110.6) (19.6)
-------- --------
Net cash (used) provided by operating activities (160.1) 100.9
Cash Flows from Investing Activities:
Capital expenditures (33.8) (25.2)
Disposal of assets 8.2 4.0
Other investing activities (15.0) (0.3)
-------- --------
Net cash used by investing activities (40.6) (21.5)
Cash Flows from Financing Activities:
Cash dividends (81.8) (79.4)
Total debt, net change 303.8 143.7
Repurchase of common stock (129.7) (42.5)
Proceeds from exercise of stock options,
net of excess tax benefit 25.7 6.4
Other financing activities 2.1 (1.0)
-------- --------
Net cash provided by financing activities 120.1 27.2
Effect of exchange rate changes on
cash and equivalents 3.8 (7.3)
-------- --------
Net (decrease) increase in cash and
equivalents $(76.8) $99.3
======== ========
AVON PRODUCTS, INC. - SUPPLEMENTAL SCHEDULE
(Unaudited)
THREE MONTHS ENDED 3/31/07
REGIONAL RESULTS
$ in Millions Total Revenue
Total in Local Operating Op. Active
Revenue US$ Currency Profit US$ Margin Units Reps
------------- ----------- ---------- ------- ----- -------
% var. % var. % var. % var. % var.
vs vs vs 2007 vs vs
1Q06 1Q06 1Q06 percent 1Q06 1Q06
------------- ----------- ---------- ------- ----- -------
North America $630.6 3% 3% $77.2 103% 12.2% 5% 0%
Latin America 656.3 7 6 88.7 29 13.5 3 2
Western Europe,
Middle East &
Africa 271.6 17 9 13.7 * 5.0 11 5
Central &
Eastern
Europe 358.9 17 9 77.4 25 21.6 1 8
Asia Pacific 199.8 5 2 20.9 * 10.5 2 2
China 68.1 44 39 2.9 * 4.3 15 *
Total from
Operations 2,185.3 9 6 280.8 113 12.8 4 4
Global
Expenses - - - (43.0) 6 - - -
Consolidated $2,185.3 9% 6% $237.8 176% 10.9% 4% 4%
CATEGORY SALES (US$)
--------------------
Consolidated
----------------
% var.
vs 1Q06
----------------
Beauty (cosmetics/fragrances/skin care/toiletries) $1,528.0 10%
Beauty Plus (fashion jewelry/watches/apparel/accessories) 427.5 7
Beyond Beauty (home products/gift and decorative products) 207.8 5
-------- -------
Net Sales $2,163.3 9%
Other Revenue 22.0 6
-------- -------
Total Revenue $2,185.3 9%
* Calculation not meaningful
SOURCE Avon Products, Inc.
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Related links:
http://www.avon.com
http://www.avoninvestor.com http://www.avoncompany.com
http://www.prnewswire.com/comp/079575.html /
CONTACT:
media, Victor Beaudet, +1-212-282-5344,
Sharon Samuel, +1-212- 282-5322, Jennifer Vargas,
+1-212-282-5404, or investors, Renee Johansen, or Rob Foresti,
+1-212-282-5320, all of Avon Products, Inc.
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