Avon Products Inc. (ticker: AVP, exchange: New York Stock Exchange (.N))
News Release -
Avon Reports First Quarter EPS of $.42, $.02 Ahead of Original OutlookSales Increase of 7% Is Strongest Since 3Q 2000, Driven by 11% Gain in Beauty Sales Active Representatives Climb 13% and Units Grow 10%
NEW YORK, Apr 25, 2003 /PRNewswire-FirstCall via COMTEX/ -- Avon Products, Inc.
(NYSE: AVP) today reported earnings for the first quarter of 2003 of $.42 per
share, an increase of 5% from last year's first-quarter earnings of $.40 per
share. The results were $.02 ahead of Avon's original target announced
February 4, and $.01 per share ahead of the increased guidance provided by the
company on March 28.
Avon said its results in the quarter reflect stronger-than-expected
international operating performance and results in the U.S. that were in line
with its March 28 forecast.
As previously announced, Avon's first-quarter earnings include costs
associated with repositioning the company's beComing product line from a
retail brand to one sold exclusively through Avon's Beauty Advisor
Representatives. The repositioning costs in the quarter were approximately
$18 million pretax.
Sales in the quarter increased 7% to $1.47 billion, versus $1.37 billion
in the 2002 period. Avon said the sales increase represented the highest
quarterly growth rate since the third quarter of 2000. In local currencies,
sales were up 12%. Avon said the five-point currency drag on sales was the
lowest since the fourth quarter of 2001 and reflected stronger currencies
year-over-year in Europe and Asia.
Avon's overall sales were driven by an 11% increase in Beauty products,
which was the highest quarterly Beauty growth rate in over six years. Avon
also reported strong increases in both units and active Representatives, which
were up 10% and 13%, respectively, with all geographic regions posting solid
gains. Avon said this was the fourth consecutive quarter of double-digit
increases in these two key business indicators.
Operating profit rose 7% in the quarter, operating margin was flat with
prior year -- as expected -- and gross margin increased 30 basis points.
Excluding the costs to reposition beComing, Avon said operating profit rose
19%, operating margin expanded by 130 basis points and gross margin increased
90 basis points versus 2002.
Net income in the quarter was $98.9 million, compared with $96.3 million
in the first quarter of 2002.
Cash flow from operations in the first quarter improved by $22 million
versus last year, despite a $40 million cash contribution to the company's
pension plan in the quarter. Avon today reiterated its full-year target for
cash flow from operations of $650-700 million.
Commenting on the first-quarter performance, Andrea Jung, Avon's chairman
and chief executive officer said, "We are particularly pleased that in this
uncertain external environment, Avon's global portfolio continues to deliver
excellent results. Our strategies to drive top-line growth clearly are
working. Robust sales, combined with the increasing benefits we expect to
reap from our Business Transformation initiatives, point to another strong
year for Avon," she said.
"In the U.S., the fundamentals of our business continue to be very solid.
Active Representatives were up 3% in the quarter and we saw a record number of
additions to the sales force. Beauty sales were up 8%, buoyed by higher
strategic investments and the highly successful re-launch of Anew Retroactive.
Our Wellness business, which is another area of strategic focus, also posted
strong double-digit sales growth versus last year. Overall U.S. sales growth
of 1% was in line with our revised expectations, reflecting the severe weather
in the quarter as well as war-related consumer uncertainty. We expect U.S.
sales growth to be up in the 3% range in the second quarter and we look for
further acceleration in the second half, driven by the launch of our new mark.
brand and a pipeline of exciting new beauty products in the core business,"
Ms. Jung said.
"Our international operations outperformed our expectations in the
quarter, generating a sales gain of 11% and an operating profit increase of
26%. Once again, international results were driven by outstanding performance
in Europe and Asia. Very encouraging, Latin America posted an increase in
dollar operating profits in the quarter for the first time since the third
quarter of 2001 by generating excellent local currency results that more than
offset weaker currencies year-over-year in the region," Ms. Jung said.
Looking ahead to the second quarter, Ms. Jung said, "Sales should continue
to grow in line with the very strong rates of the first quarter in both
dollars and local currencies, driven again by increases in units and active
Representatives. Operating profit is expected to grow at a low-teens
percentage rate and earnings per share are forecast to be up in the
mid-single-digit range, mainly reflecting unusually high foreign exchange
gains last year that do not repeat in 2003."
Ms. Jung also reiterated that Avon is on track to achieve its full-year
earnings target of $2.55 per share.
In the U.S., Avon said sales increased 1%, on top of an 8% sales increase
in the first quarter of 2002, which was the highest quarterly sales growth in
the U.S. last year. Sales were driven by Avon's beauty business, which grew
8% in the quarter. Avon's focus on beauty helped drive a 170 basis-point
increase in gross margin in the U.S. Operating profit increased 6% and
operating margin expanded 80 basis points to 19.1%, the highest first-quarter
level in over a decade. Units increased 4% and active Representatives were up
In Europe, sales increased 36%, with all major markets posting
double-digit gains. There was particular strength in Central/Eastern Europe,
up nearly 50%, including Russia, which was up nearly 70%. Europe's sales in
local currencies were up 22% in the quarter. Operating profit was up 51% and
operating margin expanded by 140 basis points to 14.4%. Units and active
Representatives increased by 26% and 21%, respectively.
In Avon's Pacific region, sales acceleration continued, advancing 17%,
which was the highest growth rate in over two years for the region. China
continued to be the fastest growing market in the Pacific, with sales up
approximately 35% in the quarter. Avon's largest Asian market, Japan, posted
a sales increase of 23% in dollars and 9% in local currency. Japan's local
currency sales growth was the highest in over five years, driven by 9% unit
growth and a 14% increase in active Representatives. Local currency sales in
the region were up 12%. The Pacific's operating profit was up 51% in the
quarter and operating margin expanded 350 basis points to 15.7%. Units were
up 8% and active Representatives grew 12%.
In Latin America, sales declined 8% in dollars due to weaker
year-over-year currencies in most markets. In local currencies, sales were up
21%, reflecting increases in every major market in the region. Dollar
operating profit was up 4% in the region, driven by particularly strong profit
growth in Mexico, which was up 27%. Units and active Representatives were up
7% and 13%, respectively, in the region, also driven by excellent growth in
Avon is the world's leading direct seller of beauty and related products,
with $6.2 billion in annual revenues. Avon markets to women in 143 countries
through 3.9 million independent sales Representatives. Avon product lines
include such recognizable brands as Avon Color, Anew, Skin-So-Soft, Advance
Techniques Hair Care, beComing 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 www.avon.com.
Cautionary Statement under the Private Securities Litigation Reform Act of
Statements in this release, which are not historical facts or information,
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. 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 the Company 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 the Company's markets, including economic
and political uncertainties in Latin America; the impact of SARS-related
concerns on the Company's Asia-Pacific business and its Asian-based supply
chain; the Company's ability to implement its business strategy and its
Business Transformation initiatives, including the integration of similar
activities across markets to achieve efficiencies; the Company's ability to
achieve anticipated cost savings and its profitability and growth targets; the
impact of substantial currency fluctuations in the Company's principal foreign
markets and the success of the Company's foreign currency hedging and risk
management strategies; the impact of possible pension funding obligations and
increased pension expense on the Company's cash flow and results of
operations; the effect of legal and regulatory proceedings, as well as
restrictions imposed on the Company, its operations or its Representatives by
foreign governments; the Company's ability to successfully identify new
business opportunities; the Company's access to financing; and the Company's
ability to attract and retain key executives. Additional information
identifying such factors is contained in the Company's Form 10-K report for
the year ended December 31, 2002, filed with the SEC. The Company undertakes
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
March 31 Change
Net sales $1,465.7 $1,372.1 7%
Other revenue 15.7 11.5
Total revenue 1,481.4 1,383.6 7%
Cost of sales (1) 574.2 540.9
Marketing, distribution and
administrative expenses (1) 743.6 690.1
Operating profit 163.6 152.6 7%
Interest expense 9.9 13.4
Interest income (2.5) (4.3)
Other expense (income), net (2) 1.8 (6.0)
Total other expenses (1) 9.2 3.1
Income from continuing operations
before taxes and minority interest 154.4 149.5 3%
Income taxes 54.0 52.1
Income from continuing operations
before minority interest 100.4 97.4 3%
Minority interest (1.5) (1.1)
Net income $98.9 $96.3 3%
Earnings per share:
Basic $.42 $.41 2%
Diluted (3) $.42 $.40 5%
Average shares outstanding:
Basic 235.09 236.70
Diluted 243.82 246.30
(1) Effective January 1, 2003, certain reclassifications were reflected
within Cost of sales, Marketing, distribution & administrative
expenses and Total other expenses, net. These reclassifications had
no impact on Net income or Earnings per share. For comparison
purposes, the prior periods were adjusted to conform to the current
(2) For the three months ended March 31, 2003, Other expense (income), net
includes foreign exchange losses of $1.1 of which $1.0 related to U.S.
dollar denominated assets in Argentina, Venezuela, Brazil and Mexico.
For the three months ended March 31, 2002, Other expense (income), net
includes foreign exchange (gains) of ($7.5) of which ($11.3) related
to a U.S. dollar denominated intercompany loan receivable in
(3) For purposes of calculating diluted earnings per share for the three
months ended March 31, 2003 and 2002, after tax interest expense of
$2.7 and $2.6, respectively, applicable to convertible debt was added
back to net income.
AVON PRODUCTS, INC. RECONCILIATION SCHEDULE
(in millions, except per share data)
Quarter Ended March 31
Gross Gross Operating Operating Pretax Net Diluted
Profit Margin Profit Margin Income Income E.P.S.
As Reported $907.2 61.2% $163.6 11.0% $154.4 $98.9 $0.42
% vs. prior year 8% 0.3 pts 7% 0.0 pts 3% 3% 5%
U.S. Retail 7.8 0.6 18.2 1.3 18.2 11.8 0.05
Adjusted $915.0 61.8% $181.8 12.3% $172.6 $110.7 $0.47
% vs. prior year 9% 0.9 pts 19% 1.3 pts 15% 15% 18%
As Reported $842.7 60.9% $152.6 11.0% $149.5 $96.3 $0.40
This supplemental schedule provides adjusted non-GAAP financial
information and a quantitative reconciliation of the differences between the
non-GAAP financial measures with the financial measures calculated and
presented in accordance with GAAP.
This information is provided to assist in investors' understanding of the
Company's results of operations. Results are adjusted to exclude expenses of
$18.2 million incurred in the first quarter to reposition the beComing brand,
primarily severance costs and inventory and asset writedowns, which are
nonrecurring in nature and materially impact the comparability of the
Company's results of operations. The adjusted information is intended to be
more indicative of the ongoing operations of Avon's core direct selling
AVON PRODUCTS, INC. - SUPPLEMENTAL SCHEDULE
FIRST QUARTER 2003 - THREE MONTHS ENDED 3/31/03
Net Sales Local Operating Op. Active
US$ Currency Profit US$ Margin Units Reps
% var. % var. % var. % var. % var.
vs vs vs 2003 vs vs
$ in Millions 1Q02 1Q02 1Q02 percent 1Q02 1Q02
North America $568.5 1% 1% $82.4 -13% 14.3% 5% 4%
US 501.2 1 1 97.5 6 19.1 4 3
International 897.2 11 19 145.5 26 16.1 12 15
Latin America 358.9 -8 21 64.3 4 17.9 7 13
Europe 326.4 36 22 47.3 51 14.4 26 21
Pacific 211.9 17 12 33.9 51 15.7 8 12
Operations 1,465.7 7 12 227.9 8 15.4 10 13
Global Expenses - - - (64.3) -11 - - -
Consolidated $1,465.7 7% 12% $163.6 7% 11.0% 10% 13%
CATEGORY SALES (US$)
% var. % var.
(cosmetics/fragrances/toiletries) $977.2 11% $279.6 8%
(fashion jewelry/watches/apparel/accessories) 254.4 -3 118.4 -5
(home products/gift and decorative/candles) 178.9 -6 79.8 -16
Health and Wellness 55.2 40 23.4 29
$1,465.7 7% $501.2 1%
SOURCE Avon Products, Inc.
or Victor Beaudet
Renee Johansen or Rob Foresti
all of Avon Products, Inc.