Revenue Up 4%, Flat in Local Currencies
Company Reconfirms Earnings Outlook for the Year
NEW YORK, Oct. 28 /PRNewswire-FirstCall/ -- Avon Products, Inc.
(NYSE: AVP) today reported that earnings in the third quarter 2005 were $.35
per share, compared with 2004 third-quarter earnings of $.37 per share.
Avon said that revenue in the third quarter 2005 grew 4% (flat in local
currencies) to $1.9 billion. Active Representatives rose 4% and units were
flat versus the prior year. Total Beauty sales in the quarter rose 5%.
Operating profit decreased 6%, mainly due to gross margin declines caused
by unfavorable pricing and product mix and higher consumer and strategic
spending. Operating margin was 13.1%. Net income in the third quarter 2005 was
$163.8 million, compared with $176.9 million a year ago.
Third-Quarter Regional Highlights
U.S. third-quarter revenue decreased 6%, with continued lower customer
purchase frequency and ongoing competitive intensity. The company also
believes that its U.S. business was affected by the impact of higher fuel
costs on Avon's Representatives and their customers. Units and active
Representatives in the quarter were down 2% and 4%, respectively.
Sales of Beauty products in the U.S. decreased 6%. Beauty Plus sales
increased 14%, primarily due to the launch of a foundations business, and
Beyond Beauty sales declined 29%, in part reflecting ongoing, planned category
repositioning. U.S. operating profit was 11% lower year over year due to
unfavorable product mix and the revenue decline. Operating margin was 13.1%.
In Europe, revenue in the third quarter increased 8% (6% in local
currencies) and active Representatives rose 6%. Units were 2% lower than the
year-ago period. Central and Eastern Europe grew 16% with revenue in Russia
increasing 19%. Europe's third-quarter operating profit grew 4%, half the rate
of the region's revenue growth, due to unfavorable pricing and product mix,
higher manufacturing overhead and costs to develop the company's global ERP
system in the region. Operating margin was 17.4%.
In Latin America, third-quarter revenue grew 14% (4% in local currencies)
as solid results in Brazil and Venezuela, in particular, more than offset a 4%
decline in Mexico. Active Representatives rose 8% and units grew 4%. Operating
profit decreased by 3% due to the impact of unfavorable pricing and product
mix, increased administrative expenses and higher consumer and strategic
investments. Operating margin was 22.6%.
In Asia Pacific, revenue decreased 3% (5% in local currencies) and units
declined 8%, as the region's performance was impacted by revenue declines in
China and Japan. China's revenue was 16% lower year over year as Avon's Beauty
Boutique owners in that country continued to reduce the size of their orders
in connection with the anticipated resumption of direct selling.
Active Representatives in the Asia Pacific region declined 3% in the
quarter. Operating profit was 18% lower versus the year-ago quarter primarily
as a result of the region's revenue decline and also due to higher investments
in China related to the implementation of direct selling and increased
advertising. Operating margin was 14.5%.
Outlook
For the full-year 2005, Avon continues to project an earnings-per-share
increase of low-to-mid single digits compared with 2004 earnings of $1.77 per
share. 2005's expectation includes $.20 per share of tax benefits primarily
from settlements of prior-year audits, partially offset by an impact of $.02
per share from a revised higher effective rate, both of which were disclosed
in the second quarter 2005. 2004's earnings per share included non-recurring
tax benefits of $.11 per share. Full-year revenues are expected to increase
mid-single digits (up slightly in local currencies), and full-year operating
profit is anticipated to be flat to down somewhat. Full-year cash flow from
operations is projected to be in the range of $800 million. The company noted
that its guidance does not include the cost of any steps that it might take
during the balance of the year to reduce its enterprise expense base.
The company expects consolidated fourth-quarter local-currency revenue
growth to be flattish compared with the prior-year quarter. U.S. revenue
trends show a weakening from the third quarter's growth rate primarily driven
by further deterioration of consumer activity that reflects the effect of
higher fuel costs and the impact of Hurricane Katrina.
The company said it will discuss action plans to address the underlying
causes of the continuing broad-based weakness in its business at an upcoming
investor meeting on November 15, 2005.
Avon will conduct a conference call at 9:00 A.M. today to discuss the
quarter's results and the outlook for the full-year. 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.
Avon is the world's leading direct seller of beauty and related products,
with $7.7 billion in annual revenues. Avon markets to women around the world
through 4.9 million independent sales Representatives. Avon product lines
include such recognizable brand names as Avon Color, Anew, Skin-So-Soft, Avon
Solutions, Advance Techniques Hair Care, Avon Naturals, Mark, and Avon
Wellness. Avon also markets an extensive line of fashion jewelry and apparel.
More information about Avon and its products can be found on the company's web
site 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 report 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 Business
Transformation 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; 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 Nine months ended Percent
September 30 Change September 30 Change
2005 2004 2005 2004
Net sales $1,865.7 $1,784.7 5% $5,690.5 $5,370.5 6%
Other revenue 20.3 21.5 60.9 66.8
Total revenue 1,886.0 1,806.2 4% 5,751.4 5,437.3 6%
Cost of sales (1) 724.5 679.8 2,153.1 2,019.8
Marketing,
distribution and
administrative
expenses (1) 914.4 863.6 2,746.7 2,599.8
Operating profit 247.1 262.8 -6% 851.6 817.7 4%
Interest expense 13.2 8.2 33.8 24.1
Interest income (10.5) (5.5) (26.4) (13.9)
Other expense, net (2) 2.3 2.1 7.6 9.4
Total other
expenses 5.0 4.8 15.0 19.6
Income before taxes
and minority interest 242.1 258.0 -6% 836.6 798.1 5%
Income taxes (3) 77.0 79.2 167.1 232.5
Income before
minority interest 165.1 178.8 669.5 565.6
Minority interest (1.3) (1.9) (5.1) (8.3)
Net income $163.8 $176.9 -7% $664.4 $557.3 19%
Earnings per share:
Basic $.35 $.37 -5% $1.41 $1.18 19%
Diluted $.35 $.37 -5% $1.40 $1.17 20%
Average shares
outstanding:
Basic 466.56 473.08 469.97 472.39
Diluted 468.95 479.36 473.82 478.20
Notes:
(1) For the three and nine months ended September 30, 2004, certain U.S.
expenses were reclassified from operating expenses to cost of sales.
These reclassifications did not affect operating profit.
(2) For the three months ended September 30, 2005 and 2004, Other expense,
net includes foreign exchange (gains) losses of ($0.3) and $1.2,
respectively. For the nine months ended September 30, 2005 and 2004,
Other expense, net includes foreign exchange losses of $5.5 and $5.9,
respectively. During the nine month period ended September 30, 2005,
the Company recorded net gains on the sale of marketable securities of
$2.5.
(3) For the nine months ended September 30, 2005, income taxes were
impacted by a reduction in tax expense of $98.5, 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 and nine months ended September 30, 2004,
income taxes were also impacted by a reduction in tax expense of $8.7
and $37.4, respectively, due to cash management and tax strategies,
favorable audit settlements, and amended returns as well as tax and
interest refunds.
AVON PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
September 30 December 31
2005 2004
Cash, including cash equivalents $985.7 $769.6
Accounts receivable, net 595.3 599.1
Inventories 953.8 740.5
Prepaid expenses and other 442.8 397.2
Total current assets 2,977.6 2,506.4
Property, plant and equipment, net 1,039.9 1,014.8
Other assets 619.7 626.9
Total assets 4,637.2 4,148.1
Debt maturing within one year 846.6 51.7
Accounts payable 489.4 490.1
Other current liabilities 933.5 983.7
Total current liabilities 2,269.5 1,525.5
Long-term debt 771.9 866.3
Other non-current liabilities 707.8 806.1
Total shareholders' equity 888.0 950.2
Total liabilities and shareholders'
equity $4,637.2 $4,148.1
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Nine Months Ended
September 30
2005 2004
Cash Flows from Operating Activities:
Net income $664.4 $557.3
Depreciation and amortization 97.5 96.4
Provision for doubtful accounts 96.7 101.0
Provision for obsolescence 47.2 44.3
Deferred income taxes 1.0 (39.9)
Other 15.1 9.6
Changes in assets and liabilities:
Accounts receivable (92.2) (119.7)
Inventories (272.6) (214.6)
Prepaid expenses and other (46.6) (42.9)
Accounts payable and accrued liabilities 27.5 90.7
Income and other taxes (99.8) (55.4)
Non-current assets and liabilities (68.5) (59.1)
Net cash provided by operating activities 369.7 367.7
Cash Flows from Investing Activities:
Capital expenditures (145.0) (162.4)
Disposal of assets 9.8 6.9
Other investing activities (11.5) (48.2)
Net cash used by investing activities (146.7) (203.7)
Cash Flows from Financing Activities:
Cash dividends (237.5) (202.5)
Total debt, net change 715.3 (12.1)
Repurchase of common stock (511.5) (143.6)
Proceeds from exercise of stock options,
net of taxes 59.0 109.4
Other financing activities (0.5) (0.2)
Net cash provided (used) by financing
activities 24.8 (249.0)
Effect of exchange rate changes on cash
and equivalents (31.7) (1.6)
Net increase (decrease) in cash and
equivalents $216.1 $(86.6)
AVON PRODUCTS, INC. - SUPPLEMENTAL SCHEDULE
THIRD QUARTER 2005 - THREE MONTHS ENDED 9/30/05
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
3Q04 3Q04 3Q04 cent 3Q04 3Q04
------------- -------- ------------ ------ ----- ------
North America $573.8 -3 % -4 % $71.2 -9 % 12.4% -1 % -3 %
US 487.3 -6 -6 63.9 -11 13.1 -2 -4
International 1,312.2 8 3 249.7 -3 19.0 0 5
Latin America 554.7 14 4 125.5 -3 22.6 4 8
Europe 504.7 8 6 87.6 4 17.4 -2 6
Asia Pacific 252.8 -3 -5 36.6 -18 14.5 -8 -3
Total from
Operations 1,886.0 4 0 320.9 -5 17.0 0 4
Global Expenses - - - (73.8) -1 - - -
Consolidated $1,886.0 4 % 0 % $247.1 -6 % 13.1% 0 % 4 %
CATEGORY SALES (US$)
Consolidated
%var. vs
3Q04
Beauty (cosmetics/fragrances/toiletries) $1,293.0 5 %
Beauty Plus (fashion jewelry/watches/apparel/
accessories) 350.7 10
Beyond Beauty (home products/gift and decorative/
candles) 222.0 -6
Net Sales $1,865.7 5 %
Other Revenue 20.3 -6
Total Revenue $1,886.0 4 %
THIRD QUARTER 2005 - NINE MONTHS ENDED 9/30/05
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
9M04 9M04 9M04 cent 9M04 9M04
------------- -------- ------------ ------ ----- ------
North America $1,786.2 -4 % -5 % $263.5 -12 % 14.8% -7 % -2 %
US 1,531.4 -6 -6 238.9 -14 15.6 -8 -2
International 3,965.2 11 6 808.9 6 20.4 4 8
Latin America 1,592.2 14 7 363.8 7 22.8 6 9
Europe 1,578.6 12 7 319.2 13 20.2 4 9
Asia Pacific(1) 794.4 2 0 125.9 -8 15.8 0 4
Total from
Operations 5,751.4 6 2 1,072.4 1 18.6 2 6
Global
Expenses - - - (220.8) 8 - - -
Consolidated
(1) $5,751.4 6 % 2 % $851.6 4 % 14.8% 2 % 6 %
CATEGORY SALES (US$)
Consolidated
% var. vs
9M04
Beauty(cosmetics/fragrances/toiletries) $3,982.2 7 %
Beauty Plus (fashion jewelry/watches/apparel/
accessories) 1,043.4 8
Beyond Beauty (home products/gift and
decorative/candles) 664.9 -1
Net Sales $5,690.5 6 %
Other Revenue 60.9 -9
Total Revenue $5,751.4 6 %
(1) Growth in Active Representatives was positively impacted by an
increase in the number of sales campaigns in the Philippines in the
second quarter of 2004, resulting in additional opportunities to
order. This change positively impacted Active Representative growth in
Asia Pacific for the nine months ended September 30, 2005 by 2 points.
SOURCE Avon Products, Inc.
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Related links:
http://www.avon.com
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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