P&G Takeover Hampers Wella’s Net
BERLIN — Restructuring charges and exceptional items largely relating to Wella’s takeover by Procter & Gamble adversely affected the German hair care company’s earnings for the abridged financial year ending June 2004.
Wella reported $249.1 million (195.2 million euros) in earnings before interest and taxes at Wella AG for the nine-month period. The company did not provide a comparable figure for 2003, but noted that a pretax loss of $290.8 million (227.9 million euros) compared with pretax earnings of $91.7 million (71.9 million euros) for the nine-month period in 2003. All dollar figures are calculated from the euro at current exchange rates.
The Darmstadt-based firm said even after adjusting for $276.9 million (217 million euros) in restructuring charges, exceptional factors such as spending on defensive measures in the professional division, residual fixed costs in the consumer division and legal expenses took their toll on earnings for the shortened business year. Wella made the decision to shift to a July 1- June 30 fiscal year in keeping with P&G’s financial calendar at an extraordinary general meeting in February 2004.
Sales, including the consumer division, which is in the process of being transferred to P&G, reached $1.98 billion (1.55 billion euros) in the nine-month period, a nominal increase of 0.2 percent. The core professional and cosmetic and fragrance divisions grew sales a nominal 5 percent in the period, or 7.2 percent when adjusted for currency effects.
The worldwide transfer of the consumer division will be completed by mid-2005. Sales for the division fell as expected, down 10.9 percent to $524.7 million (411.2 million euros). The division generated a loss in EBIT of $249.1 million (195.2 million euros), of which $215.9 million (162.9 million euros) can be attributed to restructuring charges.
The professional division increased sales for the abridged year a nominal 2.3 percent, or 4.4 percent after adjusting for currency effects to $973.6 million (763 million euros). EBIT was down to $44 million (34.5 million euros) due to restructuring charges of $49.6 million (38.9 million euros) and other exceptional items.
Cosmetics and fragrances continued its strong growth performance, with sales up a nominal 11 percent to $479.5 million (375.8 million euros). Wella said North America and Asia were the regional motors behind the division’s growth. In terms of brands, Gucci Parfums, Escada and Rochas increased sales and revenues about 20 percent compared with last year. However, restructuring costs also slashed the division’s EBIT, with an operating loss of $18.1 million (14.2 million euros) compared with earnings of $19.3 million (15.1 million euros) for the period last year.
For fiscal 2004-2005 (the year ending June 30), Wella is forecasting low single-digit growth in professional products sales, powered by color items. The consumer division will be fully transferred to P&G by the end of the 2005 fiscal year. While Wella did not make projections for the cosmetic and fragrance division, it said fragrance launches from Max Mara, Tom Tailor and Gerry Weber at the end of 2004, and scents from Gucci Parfums, Escada, Mexx and Montblanc should have a positive effect on the business.
Avon Earnings Swell 32.9%
NEW YORK — Strong performances from its international markets continued to ignite earnings for Avon Products Inc. during the third quarter.
For the three months ended Sept. 30, the New York-based beauty products giant reported a 32.9 percent bump in earnings to $176.9 million, or 37 cents a diluted share. Earnings bested Wall Street’s consensus estimate and its own guidance of 34 cents. Comparatively, the company reported earnings of $133.1 million, or 28 cents, in the year-ago period.
Revenue increased 11.4 percent to $1.81 billion compared with revenue of $1.62 billion in the same period a year ago. Beauty products made up the lion’s share of sales, which rose 11.2 percent to $1.78 billion from $1.6 billion. Excluding the benefits of currency exchange, sales rose 10 percent.
“Beauty growth significantly outpaced overall growth,” said Andrea Jung, chairman and chief executive officer, during the company’s conference call to Wall Street analysts. “Our beauty sales were up 15 percent versus the same period a year ago, and at the end of the quarter, beauty accounted for 69 percent of total sales compared with 67 percent in the same period last year.”
For the nine months to date, earnings bloomed 38.1 percent to $557.3 million, or $1.17 a share, from $403.5 million, or 84 cents, in the same period a year ago. Revenue grew 14.6 percent to $5.44 billion from $4.74 billion.
Results were strong enough for management to raise its earnings expectations for the year to between $1.75 and $1.77 a share, which, if achieved, would mark a 26 percent improvement over 2003. The company’s earlier full-year guidance had anticipated earnings of $1.72 a share.
— Ross Tucker