Beauty Sales Grow 14%; Active Representatives Increase 9%
Second-Quarter Earnings of $.26 per Share Reflect Investments in
Advertising and Representative Value Proposition; Costs to Implement
Product Line Simplification and Restructuring
NEW YORK, N.Y., July 31 /PRNewswire-FirstCall/ -- Avon Products, Inc.
(NYSE: AVP) today reported that second-quarter 2007 total revenue grew 12%
year over year (7% in local currency) to $2.3 billion. Sales of Beauty
products rose 14% and Active Representatives increased 9%. Units sold in
the quarter increased 7% versus the prior-year quarter.
Net income in the second quarter 2007 was $113 million, or $.26 per
share, compared with $151 million, or $.33 per share in the year-ago
quarter. The 2007 quarter included pretax costs to continue implementation
of the company's Product Line Simplification program of $61 million and
restructuring program of $21 million, compared with $49 million pretax
costs to implement restructuring in the prior year. Additionally, the 2007
quarter included $71 million pretax for incremental funding of advertising
and the Representative Value Proposition.
Andrea Jung, chairman and CEO, commented, "We are pleased with our
strong performance again this quarter as our turnaround continues to gain
traction. We are investing at significant levels in both advertising and
the Representative Value Proposition. Clearly these growth investments are
paying back, as evidenced by our 14% growth in Beauty sales and 9% growth
in Active Representatives. We were particularly pleased that revenue
increased over 30% in five of our key growth markets."
Sales of Beauty products recorded double-digit growth for a fourth
consecutive quarter, increasing 14% (8% in local currency), powered by
growth in all categories: fragrance up 21%, personal care up 19%, color
cosmetics up 16% and skin care up 4%.
In the second quarter, the company increased advertising 74%, to $93
million, compared with the same period a year ago. Avon rolled out its
"Hello Tomorrow" advertising campaign including: promotion of Avon's
flagship Avon Color cosmetics, specifically, Ultra Color Rich Lipstick; and
Anew Retroactive anti-aging skin care products; and Representative
recruitment advertising in the U.S.
In the second quarter, the company also invested $30 million
incrementally to enhance the Representative Value Proposition through
continued implementation of its Sales Leadership program, increased
incentives and web enablement.
"We continue to track toward our planned $100 million of incremental
investment in the Representative Value Proposition this year," said Ms.
Jung. "Given the success we are seeing in our business, we decided to
increase our full-year advertising investment to $375 million, 50% above
2006's level, versus our earlier plan of a 35% increase."
The company said that second-quarter 2007 operating profit of $187
million was 17% lower than 2006's $225 million due to the aforementioned
increased investments in advertising and the Representative Value
Proposition, as well as costs associated with its Product Line
Simplification program. Second- quarter 2007 operating margin was 8.0%,
versus 10.8% in the prior-year quarter.
The quarter's effective tax rate of 32.3% was higher than 2006's rate
of 30.7%. The 2006 rate benefited primarily from a one-time favorable tax
refund.
The company further stepped up the pace of its share repurchases during
the second quarter, buying approximately $280 million of stock, to bring
repurchases for the first six months of 2007 to $410 million, and total
program purchases to $758 million of the current $1 billion authorization.
At quarter end, Avon's net debt had increased $577 million from the
year- end level. Net cash used by operations was $1 million through six
months of 2007 compared with $289 million of cash provided by operations in
the same period of 2006, due primarily to increased payments in 2007 for
incentive- based compensation and inventory purchases.
Second-Quarter Regional Highlights
In the North America region, second-quarter revenue was flat with that
of the prior year. Active Representatives increased 4% as the company
continued to implement initiatives to improve the Representative Value
Proposition. The average size of an order declined versus the prior-year
quarter primarily due to last year's strong product innovation in the skin
care category. Units sold were flat versus the prior year. Operating profit
decreased 32% versus the 2006 quarter, primarily due to inventory
obsolescence costs associated with the Product Line Simplification program
as well as a sizeable year-over-year increase in advertising expense. The
region's operating margin was 6.7%.
In Latin America, second-quarter revenue rose 22% year over year (15%
in local currency), with growth in all markets of the region. The markets
of Brazil, Colombia and Venezuela each grew revenues over 30%, with Brazil
being the largest contributor to the region's expansion. Additionally,
Mexico had 3% higher revenue following several quarters of decline. The
region's Active Representatives grew 9%, with increases in all markets, and
units sold were up 12%. Operating profit increased 18% versus the 2006
quarter, driven by higher sales. Latin America's operating margin was
14.2%.
Western Europe, Middle East & Africa achieved revenue growth of 13% (5%
in local currency), due to continued strength in Turkey, where revenue rose
over 30%, and the U.K., where revenue increased nearly 10%. The region's
Active Representatives rose 8% and units sold increased 1%, versus the
prior-year period. Operating profit decreased 41% versus the 2006 quarter,
primarily due to inventory obsolescence costs associated with the Product
Line Simplification program. Operating margin was 4.9%.
In Central & Eastern Europe, revenue in the second quarter rose 15% (6%
in local currency) on continued strong growth in Russia, where revenue grew
in the mid-teens. The region's Active Representatives grew 8%, while units
sold increased 6%. Operating profit decreased 35% year over year, primarily
due to inventory obsolescence costs associated with the Product Line
Simplification program as well as a sizeable year-over-year increase in
advertising expense in 2007. Operating margin was 13.8%.
Asia-Pacific revenue increased 3% (decreased 1% in local currency). The
company said that Japan's revenue continued to be relatively flat with that
of the prior-year period for a second straight quarter. The region's Active
Representatives were 3% higher and units sold rose 1%. The Asia-Pacific
region's operating profit increased 34% versus the 2006 quarter, primarily
due to lower costs to implement restructuring initiatives. Operating margin
was 8.0%.
Revenue in China grew 36% (30% in local currency), reflecting continued
expansion of the company's direct-selling business. As of the end of June,
Avon China had nearly 660,000 certified Sales Promoters, approximately
240,000 of whom fit Avon's definition of an Active Representative. Units
sold were 19% higher versus the prior year in the second quarter. China had
an operating loss of $2 million compared with an operating loss of $4
million in the prior- year quarter. The region's operating margin was
(3.1)%.
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
6535431). 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,"
"believe," "may," "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 and realize the
projected benefits from 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 inventory obsolescence and other 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
identify and analyze acquisition candidates, and our ability to
negotiate and consummate acquisitions as well as 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;
-- the risk of disruption in Central and Eastern Europe associated with a
change to a more rapid selling cycle with more frequent brochures;
-- 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 ability to secure financing at attractive
rates; and
-- the impact of possible pension funding obligations, increased pension
expense and any changes in pension regulations or interpretations
thereof 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 Percent Six months Percent
ended June 30 Change ended June 30 Change
-------------- ------- -------------- -------
2007 2006 2007 2006
--------- --------- --------- --------
Net sales $2,306.4 $2,058.9 12% $4,469.7 $4,041.3 11%
Other revenue 22.4 20.6 44.4 41.4
--------- --------- --------- --------
Total revenue 2,328.8 2,079.5 12% 4,514.1 4,082.7 11%
Cost of sales (1) 925.0 776.5 1,761.7 1,556.2
Selling, general and
administrative
expenses (1) 1,216.9 1,077.7 2,327.7 2,215.0
--------- --------- --------- --------
Operating profit 186.9 225.3 -17% 424.7 311.5 36%
--------- --------- --------- --------
Interest expense (28.1) (23.9) (54.6) (50.4)
Interest income 10.3 16.7 22.6 29.9
Other expense, net (1.2) (0.8) (1.8) (2.4)
--------- --------- --------- --------
Total other
expenses (19.0) (8.0) (33.8) (22.9)
Income before taxes
and minority interest 167.9 217.3 -23% 390.9 288.6 35%
Income taxes (2) (54.2) (66.6) (126.6) (81.1)
--------- --------- --------- --------
Income before minority
interest 113.7 150.7 264.3 207.5
Minority interest (1.0) 0.2 (1.6) (0.4)
--------- --------- --------- --------
Net income $112.7 $150.9 -25% $262.7 $207.1 27%
========= ========= ========= ========
Earnings per share:
Basic $.26 $.34 -24% $.60 $.46 30%
========= ========= ========= ========
Diluted $.26 $.33 -21% $.60 $.46 30%
========= ========= ========= ========
Average shares
outstanding:
Basic 434.85 449.36 437.71 450.05
Diluted 438.45 451.87 441.09 452.24
(1) For the three and six months ended June 30, 2007, costs to implement
restructuring initiatives impacted cost of sales by $0 and $0.7,
respectively, and selling, general and administrative expenses by
$20.5 and $29.5, respectively. 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 selling, general
and administrative expenses by $49.2 and $169.8, respectively.
(2) 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.
AVON PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
June 30 Dec 31
2007 2006
--------- ----------
Cash, including cash equivalents $903.4 $1,198.9
Accounts receivable, net 675.2 700.4
Inventories 1,030.7 900.3
Prepaid expenses and other 566.8 534.8
--------- ---------
Total current assets 3,176.1 3,334.4
Property, plant and equipment, net 1,121.4 1,100.2
Other assets 850.0 803.6
--------- ---------
Total assets 5,147.5 5,238.2
========= =========
Debt maturing within one year 907.5 615.6
Accounts payable 612.9 655.8
Other current liabilities 1,043.7 1,253.8
--------- ---------
Total current liabilities 2,564.1 2,525.2
Long-term debt 1,160.3 1,170.7
Other non-current liabilities 798.6 751.9
Total shareholders' equity 624.5 790.4
--------- ---------
Total liabilities and shareholders'
equity $5,147.5 $5,238.2
========= =========
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Six Months Ended
June 30
------------------------
2007 2006
-------- -------
Cash Flows from Operating Activities:
Net income $262.7 $207.1
Depreciation and amortization 87.7 80.1
Provision for doubtful accounts 75.0 68.8
Provision for obsolescence 120.4 67.3
Share-based compensation 34.1 33.3
Deferred income taxes 9.2 (30.1)
Asset write-off restructuring charges 0.2 8.2
Other 15.8 2.6
Changes in assets and liabilities:
Accounts receivable (28.9) 1.7
Inventories (220.7) (161.0)
Prepaid expenses and other (40.3) (22.5)
Accounts payable and accrued liabilities (152.1) 106.6
Income and other taxes (106.9) (32.3)
Non-current assets and liabilities (57.1) (40.4)
Net cash (used) provided by operating -------- -------
activities (0.9) 289.4
Cash Flows from Investing Activities:
Capital expenditures (83.7) (63.0)
Disposal of assets 7.2 6.8
Other investing activities (18.0) (10.7)
-------- -------
Net cash used by investing activities (94.5) (66.9)
Cash Flows from Financing Activities:
Cash dividends (165.1) (160.2)
Total debt, net change 291.8 114.8
Repurchase of common stock (410.1) (129.6)
Proceeds from exercise of stock
options, net of excess tax benefit 57.9 16.5
Other financing activities 0.9 (0.5)
-------- -------
Net cash used by financing activities (224.6) (159.0)
Effect of exchange rate changes on
cash and equivalents 24.5 (7.7)
-------- -------
Net (decrease) increase in cash and
equivalents $(295.5) $55.8
======== =======
THREE MONTHS ENDED 6/30/07
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
2Q06 2Q06 2Q06 percent 2Q06 2Q06
------------- ----------- ---------- ------- ----- ------
-
North America $619.8 0% 0% $41.5 -32% 6.7% 0% 4%
Latin America 798.1 22 15 113.7 18 14.2 12 9
Western Europe,
Middle East &
Africa 310.0 13 5 15.2 -41 4.9 1 8
Central &
Eastern
Europe 332.9 15 6 45.9 -35 13.8 6 8
Asia Pacific 203.0 3 -1 16.2 34 8.0 1 3
China 65.0 36 30 (2.0) 53 -3.1 19 *
Total from
Operations 2,328.8 12 7 230.5 -12 9.9 7 9
Global
Expenses -- -- -- (43.6) 18 -- -- --
Consolidated $2,328.8 12% 7% $186.9 -17% 8.0% 7% 9%
CATEGORY SALES (US$)
--------------------
Consolidated
----------------
% var.
vs 2Q06
----------------
Beauty (cosmetics/fragrances/skin care/toiletries) $1,647.8 14%
Beauty Plus (fashion jewelry/watches/apparel/accessories) 450.0 8
Beyond Beauty (home products/gift and decorative products) 208.6 7
-------- ------
Net Sales $2,306.4 12%
Other Revenue 22.4 9
-------- ------
Total Revenue $2,328.8 12%
SIX MONTHS ENDED 6/30/07
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
1H06 1H06 1H06 percent 1H06 1H06
------------- ----------- ----------- ------- ----- ------
North America $1,250.4 1% 1% $118.7 20% 9.5% 3% 2%
Latin America 1,454.4 15 11 202.4 22 13.9 7 5
Western Europe,
Middle East &
Africa 581.6 15 7 28.9 * 5.0 6 8
Central &
Eastern
Europe 691.8 16 8 123.3 -7 17.8 3 8
Asia Pacific 402.8 4 1 37.1 271 9.2 2 1
China 133.1 40 34 0.9 * 0.7 17 *
Total from
Operations 4,514.1 11 7 511.3 30 11.3 5 7
Global
Expenses -- -- -- (86.6) 5 -- -- --
Consolidated $4,514.1 11% 7% $424.7 36% 9.4% 5% 7%
CATEGORY SALES (US$)
--------------------
Consolidated
----------------
% var.
vs 06
----------------
Beauty (cosmetics/fragrances/skin care/toiletries) $3,175.8 12%
Beauty Plus (fashion jewelry/watches/apparel/accessories) 877.5 8
Beyond Beauty (home products/gift and decorative products) 416.4 6
-------- ------
Net Sales $4,469.7 11%
Other Revenue 44.4 7
-------- ------
Total Revenue $4,514.1 11%
* Calculation not meaningful
SOURCE Avon Products, Inc.
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Related links:
http://www.avon.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, +1-212-282-5320, all of Avon
Products, Inc.
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