Revenue of $2.5 Billion 10% Lower Year over Year Due to Foreign
Exchange Pressure; Up 5% on Local-Currency Basis Active
Representatives Up 11%; Beauty Units Up 3%; Overall Units Up 2%
Second-Quarter Earnings per Share of $.19, Including Costs of $.19
for Restructuring NEW YORK, July 30 /PRNewswire-FirstCall/ -- Avon
Products, Inc. (NYSE: AVP) today reported second-quarter 2009 total
revenue of $2.5 billion, 10% lower than that of 2008's second
quarter, but up 5% on a local-currency basis as foreign exchange
pressured growth by 15 percentage points. Beauty sales in the
second quarter 2009 were 10% lower versus the prior-year period,
but increased 5% on a local-currency basis. Active Representatives
grew 11%. Units overall rose 2% versus the prior-year quarter and
Beauty units increased 3%. Andrea Jung, Chairman and CEO, remarked,
"Our bold strategies to counter the recession are working. We've
been successful at gaining Representatives and consumers during
these tough economic times. This confirms our belief in the
inherent advantage of our direct-selling business model. As women
around the globe are seeking income and smart value products, Avon
is there to meet their needs. "From an earnings perspective, our
results included substantial costs associated with our recently
launched 2009 restructuring program. These actions reflect our
continuing determination to transform our cost structure to help
fund growth. Also, foreign exchange continued to significantly
pressure profits, as expected. We are taking aggressive steps to
help offset the foreign-exchange impact throughout our value chain,
the benefits of which should be stronger in the second half of
2009. Ms. Jung concluded, "Our focus on driving market share gains,
coupled with a constant turnaround mentality, reflects our
commitment to emerge as a stronger and more competitive company."
Avon's Beauty sales decreased 10%, but were up 5% in local currency
in the second quarter. On a local-currency basis, fragrance, color
cosmetics, personal care and skin care grew 8%, 7%, 6% and 1%,
respectively. On a reported basis, fragrance, color cosmetics,
personal care and skin care sales-growth rates were -9%, -9%, -10%
and -12%, respectively. Second-quarter 2009 gross margin of 62.2%
was 150 basis points below that of the prior-year quarter, as price
increases, manufacturing productivity gains and benefits from the
company's Strategic Sourcing Initiative helped to mitigate 210
basis points of unfavorable transaction-exchange impact. Selling,
general and administrative expense rose as a percent of revenue by
480 basis points versus 2008's second quarter due to costs to
implement restructuring initiatives, lower revenue and
disproportionate dollar-denominated expenses. Advertising for the
quarter was $82 million, down $21 million from last year's period
due primarily to foreign exchange. Advertising expense also
benefited from improved buying productivity and general softness in
media pricing. Thus, the company was able to maintain its
advertising presence at a level similar to a year ago. Avon
invested an incremental $13 million in the quarter on initiatives
to further improve its Representative Value Proposition. As
announced earlier this month, second-quarter 2009 expenses included
costs associated with the company's 2009 and 2005 restructuring
programs totaling $89 million pretax, or $.19 per share after tax.
This compared with costs of $13 million, or $.02 per share, related
to the company's 2005 restructuring program in the prior-year
period. Second-quarter 2009 operating profit was $183 million
compared with $374 million in the prior-year quarter and the
operating margin was 7.4%, compared with 13.7% in second quarter
2008. The aforementioned higher costs to implement restructuring
initiatives lowered operating margin year over year by 310 basis
points. Additionally, unfavorable foreign exchange lowered
operating margin by an estimated 370 basis points (approximately
250 of that from foreign-exchange transaction and approximately 120
from foreign-exchange translation) year over year. The second
quarter 2009's effective tax rate of 47.1% compared with 2008's
rate of 31.2%. The higher 2009 rate results from the establishment
of a valuation allowance on certain deferred tax assets as a result
of the company's 2009 restructuring actions. The impact of this
allowance was $.05 per share in the 2009 quarter, and is part of
the $.19 per share cost of restructuring in the quarter. Net income
in the second quarter 2009 was $83 million, or $.19 per share,
compared with $236 million, or $.55 per share, in the year-ago
quarter. At quarter end, Avon's total debt had increased $203
million from the year-end level, to $2.7 billion, and cash had
increased $116 million, to $1.2 billion. Net cash provided by
operating activities was $75 million through six months of 2009
compared with $172 million of cash provided by operating activities
in the same period of 2008, with the change due primarily to lower
net income. Second-Quarter Regional Results Latin America's
second-quarter 2009 revenue was 3% lower year over year, but up 15%
on a local-currency basis. Local-currency revenue increased 23% in
Brazil, 14% in Mexico and 2% in Venezuela, which, on a reported
basis, were -2%, -11% and 2%, respectively. The region's Active
Representatives grew 13%, and units sold were up 5%. Operating
profit was 29% lower (-11% in local currency) due equally to
unfavorable foreign exchange and the impact of costs to implement
restructuring initiatives. Latin America's second-quarter operating
margin was 13.7%, including a 240-basis-points impact from costs to
implement restructuring. Second-quarter revenue in North America
declined 10% (-8% in local currency). Active Representatives were
up 4% versus the prior-year quarter reflecting the company's
successful recruiting drive since early March. Units sold were 6%
lower versus the prior year. The region's revenue continued to be
pressured by lower consumer spending, particularly in the Fashion
category. North America's second-quarter operating profit decreased
67% (-65% in local currency) versus the 2008 quarter reflecting the
impact of lower revenue and fixed overhead expense as well as costs
to implement restructuring initiatives. The region's operating
margin was 4.4%, including a 330-basis-points impact from costs to
implement restructuring. In Central & Eastern Europe,
second-quarter revenue was 25% lower year over year but up 3% on a
local-currency basis. Local-currency revenue increased 14% in
Russia (-16% on a reported basis). The region's Active
Representatives grew 6% in the quarter, and units sold declined 4%
versus the prior-year's quarter. Operating profit decreased 79%
(-66% in local currency) versus the 2008 quarter, due equally to
the impact of costs to implement restructuring initiatives and
unfavorable foreign exchange. The region's operating margin was
6.0%, including a 580-basis-points impact from costs to implement
restructuring. Western Europe, Middle East & Africa's
second-quarter revenue decreased 15% versus the prior-year quarter
but rose 4% on a local-currency basis. Local-currency revenue
increased 1% in the U.K. and 14% in Turkey, which, on a reported
basis, were -22% and -10%, respectively. The region's Active
Representatives grew 8% year over year. Units sold decreased 2%.
Operating profit decreased 69% (-62% in local currency) versus the
2008 quarter, due equally to the impact of costs to implement
restructuring initiatives and unfavorable foreign exchange. The
region's operating margin was 4.4%, including a 480-basis-points
impact from costs to implement restructuring. Asia-Pacific's
second-quarter revenue decreased 8% year over year due to foreign
exchange (flat on a local-currency basis.) On a local-currency
basis, 10% growth in the Philippines (-1% on a reported basis)
offset a similar-sized decrease in Japan's revenue. The region's
Active Representatives were 10% higher, and units sold were flat
with the prior year. Operating profit decreased 58% (-53% in local
currency) versus the 2008 quarter, due to the impact of costs to
implement restructuring initiatives as well as unfavorable foreign
exchange. The region's operating margin was 5.5%, including a
570-basis-points impact from costs to implement restructuring.
Second-quarter revenue in China grew 15% (13% in local currency)
year over year on continued strength of the direct selling
business. Active Representatives rose 52% year over year and units
sold were 32% higher versus the prior year. China had operating
profit of $7 million in the quarter compared with a loss of $8
million in the 2008 quarter, primarily due to lower advertising
expense and higher sales. The region's operating margin was 7.9%.
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:18409647). 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 over $10 billion in annual
revenue. As the world's largest direct seller, Avon markets to
women in more than 100 countries through 5.8 million independent
Avon Sales Representatives. Avon's product line includes beauty
products, as well as fashion and home products, and features such
well-recognized brand names as Avon Color, Anew, Skin-So-Soft,
Advance Techniques, Avon Naturals, and Mark. 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," "forecast," "plan," "believe," "may," "expect,"
"anticipate," "intend," "planned," "potential," "can,"
"expectation" 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 gross and operating margins and
projected benefits (in the amounts and time schedules we expect)
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 program, sales and operation planning process,
strategic sourcing initiative, outsourcing strategies,
zero-overhead-growth philosophy, cash flow from operations and cash
management, tax, foreign currency hedging and risk management
strategies; -- our ability to realize the anticipated benefits
(including any projections concerning future revenue and operating
margin increases) 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; -- a general economic downturn, a recession globally or in
one or more of our geographic regions, such as North America, or
sudden disruption in business conditions, and the ability of our
broad-based geographic portfolio to withstand such economic
downturn, recession or conditions; -- the inventory obsolescence
and other costs associated with our product line simplification
program; -- our ability to effectively implement initiatives to
reduce inventory levels in the time period and in the amounts we
expect; -- our ability to achieve growth objectives or maintain
rates of growth, particularly in our largest markets and developing
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 economic factors, including
inflation and fluctuations in interest rates and currency exchange
rates, as well as the possible designation of Venezuela as a highly
inflationary economy, and the potential effect of such factors on
our business, results of operations and financial condition; -- our
ability to successfully transition our business in China in
connection with the resumption of direct selling in that market in
2006, our ability to operate using the direct-selling model
permitted in that market and our ability to retain and increase the
number of Active Representatives there over a sustained period of
time; -- 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; --
general economic and business conditions in our markets, including
social, economic and political uncertainties in the international
markets in our portfolio; -- any consequences of internal
investigations and compliance reviews that we conduct from time to
time, including the ongoing investigation of our China operations
and the review of our practices relating to the Foreign Corrupt
Practices Act and related U.S. and foreign laws in additional
countries; -- 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 enhance the Representative experience
and increase Representative productivity through investments in the
direct-selling channel, and to compete with other direct-selling
organizations to recruit, retain and service Representatives; --
the impact of the seasonal nature of our business, adverse effect
of rising energy, commodity and raw material prices, 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 ratings and 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, 2008, 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 Six months ended
Percent ended Percent June 30 Change June 30 Change
----------------- ------- ----------------- ------- 2009 2008 2009
2008 ------- ------- ------- ------- Net sales $2,445.7 $2,711.0
-10% $4,603.4 $5,188.9 -11% Other revenue 24.6 25.1 46.7 48.9
------- ------- ------- ------- Total revenue 2,470.3 2,736.1 -10%
4,650.1 5,237.8 -11% Cost of sales 934.3 993.4 1,745.5 1,917.1
Selling, general and administrative expenses 1,353.1 1,368.8
2,553.3 2,650.6 ------- ------- ------- ------- Operating profit
182.9 373.9 -51% 351.3 670.1 -48% ------- ------- ------- -------
Interest expense 27.9 26.1 52.7 52.2 Interest income (4.7) (8.6)
(12.0) (17.8) Other (income) expense, net (0.2) 12.0 4.0 12.7
------- ------- ------- ------- Total other expenses 23.0 29.5 44.7
47.1 Income before taxes 159.9 344.4 -54% 306.6 623.0 -51% Income
taxes (75.3) (107.4) (104.5) (199.8) ------- ------- -------
------- Net income 84.6 237.0 202.1 423.2 Net income attributable
to noncontrolling interest (1.7) (1.4) (1.9) (2.9) ------- -------
------- ------- Net income attributable to Avon $82.9 $235.6 -65%
$200.2 $420.3 -52% ======= ======= ======= ======= Earnings per
share: Basic $.19 $.55 -65% $.47 $.98 -52% ======= ======= =======
======= Diluted $.19 $.55 -65% $.46 $.97 -53% ======= =======
======= ======= AVON PRODUCTS, INC. CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions) June 30 December 31 2009 2008 -----------
----------- Assets Current Assets Cash and cash equivalents
$1,221.0 $1,104.7 Accounts receivable, net 689.1 687.8 Inventories
1,083.1 1,007.9 Prepaid expenses and other 850.6 756.5 -----------
----------- Total current assets 3,843.8 3,556.9 -----------
----------- Property, plant and equipment, at cost 2,545.2 2,439.9
Less accumulated depreciation (1,147.5) (1,096.0) -----------
----------- 1,397.7 1,343.9 Other assets 1,075.8 1,173.2
----------- ----------- Total assets $6,317.3 $6,074.0 -----------
----------- Liabilities and Shareholders' Equity Current
Liabilities Debt maturing within one year $446.9 $1,031.4 Accounts
payable 662.9 724.3 Accrued compensation 220.2 234.4 Other accrued
Liabilities 616.6 581.9 Sales and taxes other than income 219.6
212.2 Income taxes 69.6 128.0 ----------- ----------- Total current
liabilities 2,235.8 2,912.2 ----------- ----------- Long-term debt
2,243.5 1,456.2 Employee benefit plans 659.9 665.4 Long-term income
taxes 160.0 168.9 Other liabilities 155.6 159.0 -----------
----------- Total liabilities $5,454.8 $5,361.7 -----------
----------- Shareholders' Equity Common stock $185.9 $185.6
Additional paid-in-capital 1,903.0 1,874.1 Retained earnings
4,138.7 4,118.9 Accumulated other comprehensive loss (860.1)
(965.9) Treasury stock, at cost (4,543.4) (4,537.8) -----------
----------- Total Avon shareholders' equity 824.1 674.9 -----------
----------- Noncontrolling Interest 38.4 37.4 -----------
----------- Total shareholders' equity $862.5 $712.3 -----------
----------- Total liabilities and shareholders' equity $6,317.3
$6,074.0 ----------- ----------- AVON PRODUCTS, INC. CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Six Months Ended
June 30 ------------------ 2009 2008 -------- -------- Cash Flows
from Operating Activities Net income $202.1 $423.2 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation and Amortization 82.2 92.7 Provision for doubtful
accounts 92.6 95.3 Provision for obsolescence 44.7 28.9 Share-based
compensation 31.9 31.1 Deferred income taxes (0.1) 3.7 Other 27.5
17.3 Changes in assets and liabilities: Accounts receivable (65.3)
8.1 Inventories (102.4) (145.2) Prepaid expenses and other (49.4)
(117.1) Accounts payable and accrued liabilities (65.3) (231.9)
Income and other taxes (89.2) (8.9) Noncurrent assets and
liabilities (33.9) (24.8) -------- -------- Net cash provided by
operating activities 75.4 172.4 -------- -------- Cash Flows from
Investing Activities Capital expenditures (108.1) (136.0) Disposal
of assets 5.7 5.1 Purchases of investments (0.7) (18.3) Proceeds
from sale of investments 61.7 18.1 Other Investing 5.8 - --------
-------- Net cash used by investing activities (35.6) (131.1)
-------- -------- Cash Flows from Financing Activities Cash
dividends (183.6) (177.3) Debt, net (maturities of three months or
less) (501.6) (281.0) Proceeds from debt 884.7 496.3 Repayment of
debt (131.6) (59.5) Proceeds from exercise of stock options 0.7
28.6 Excess tax benefit realized from share-based compensation
(1.6) 5.0 Repurchase of common stock (6.2) (120.9) --------
-------- Net cash provided (used) by financing activities 60.8
(108.8) -------- -------- Effect of exchange rate changes on cash
and cash equivalents 15.7 64.4 Net increase (decrease) in cash and
cash equivalents 116.3 (3.1) Cash and equivalents at beginning of
year $1,104.7 $963.4 Cash and equivalents at end of period $1,221.0
$960.3 AVON PRODUCTS, INC. SUPPLEMENTAL SCHEDULE (Unaudited) (In
millions) THREE MONTHS ENDED 6/30/09 ==========================
REGIONAL RESULTS ================ Total Revenue $ in Total in Local
Operating Op. Active Millions Revenue US$ Currency Profit US$
Margin Units Reps ----------- -------- ---------- ------ -----
------ % var. % var. % var. % var. % var. vs vs vs 2009 vs vs 2Q08
2Q08 2Q08 percent 2Q08 2Q08 ----------- -------- -----------
------- ------ ------ Latin America $977.0 -3% 15% $133.9 -29%
13.7% 5% 13% North America(1) 570.6 -10 -8 25.1 -67 4.4 -6 4
Central & Eastern Europe 324.4 -25 3 19.4 -79 6.0 -4 6 Western
Europe, Middle East & Africa 299.9 -15 4 13.1 -69 4.4 -2 8 Asia
Pacific 208.8 -8 0 11.5 -58 5.5 0 10 China 89.6 15 13 7.1 * 7.9 32
52 Total from Opera- tions 2,470.3 -10 5 210.1 -49 8.5 2 11 Global
Expenses - - - (27.2) 35 - - - Consol- idated (1) $2,470.3 -10% 5%
$182.9 -51% 7.4% 2% 11% CATEGORY SALES (US$) ====================
Consolidated ---------------- % var. vs 2Q08 ----------------
Beauty (cosmetics/fragrances/skin care/toiletries) $1,761.8 -10%
Fashion (fashion jewelry/watches/apparel/footwear/ accessories)
427.9 -13 Home (gift & decorative products/housewares/
entertainment & leisure/kids/nutrition) 255.9 -1 -------- -----
Net Sales $2,445.6 -10% Other Revenue 24.7 -2 -------- ----- Total
Revenue $2,470.3 -10% SIX MONTHS ENDED 6/30/09
======================== REGIONAL RESULTS ================ Total
Revenue $ in Total in Local Operating Op. Active Millions Revenue
US$ Currency Profit US$ Margin Units Reps ------------ --------
----------- ------ ----- ------- % var. % var. % var. % var. % var.
vs vs vs 2009 vs vs 1H08 1H08 1H08 percent 1H08 1H08 ------------
-------- ----------- ------- ------ ------- Latin America $1,771.0
-6% 15% $222.1 -28% 12.5% 6% 10% North America (1) 1,096.3 -11 -9
47.6 -66 4.3 -7 2 Central & Eastern Europe 645.8 -24 3 67.7 -63
10.5 -3 8 Western Europe, Middle East & Africa 543.1 -19 1 19.1
-69 3.5 -4 7 Asia Pacific 408.4 -8 0 26.7 -47 6.5 0 7 China 185.5
12 8 20.6 * 11.1 16 46 Total from Opera- tions 4,650.1 -11 4 403.8
-46 8.7 1 9 Global Expenses - - - (52.5) 34 - - - Consol- idated
(1) $4,650.1 -11% 4% $351.3 -48% 7.6% 1% 9% CATEGORY SALES (US$)
==================== Consolidated --------------- % var. vs 1H08
--------------- Beauty (cosmetics/fragrances/skin care/toiletries)
$3,321.6 -11% Fashion (fashion jewelry/watches/apparel/footwear/
accessories) 818.0 -12 Home (gift & decorative
products/housewares/ entertainment & leisure/kids/nutrition)
463.8 -10 -------- ---- Net Sales $4,603.4 -11% Other Revenue 46.7
-4 -------- ---- Total Revenue $4,650.1 -11% * Calculation not
meaningful (1) North America Active Representative growth benefited
from increased ordering opportunities in Canada as a result of a
move from a three-week campaign cycle to a two-week campaign cycle
beginning in the second quarter of 2008. DATASOURCE: Avon Products,
Inc. CONTACT: Renee Johansen, or Yana Friedman, +1-212-282-5320 Web
Site: http://www.avoncompany.com/
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