By  on February 7, 2002

NEW YORK -- With its fourth-quarter profits zapped by special items, Avon Products Inc. said that in 2002 it will pause its retail expansion of BeComing and may take more charges to realign its business.

The direct marketer of cosmetics, based here, had a rosy outlook for the longer term, though, with operating profit margins picking up 250 basis points, for about $150 million in additional profits, by 2005.

Net income for the three months ended Dec. 31 sunk 44.2 percent, to $110.3 million, or 46 cents a diluted share, compared with $197.5 million, or 81 cents, a year ago. Results included a $94.9 million pretax charge, two-thirds of which was for facility closures and severance, while the remainder covered organization realignment costs. The 2000 period also included a $34.7 million, or 14 cents per share, one-time benefit. Operating profits before special charges grew 9 percent, to $285.5 million from $261.9 million.

Sales for the quarter were up 5.6 percent, to $1.75 billion from $1.66 billion a year ago. On a constant currency basis, sales advanced 9 percent, in tandem with identical increases in units and active representatives.

"The key to this story is unit volume growth. Where else do you get 7, 8 or 9 percent increases?" Banc of America Securities analyst William Steele asked, noting that The Estee Lauder Cos. and Procter & Gamble have been unable to reach that level recently. "Avon is the unit volume leader," asserted Steele.

U.S. sales gained 10 percent, with a 12 percent uptick in operating profits, excluding year-ago asset write-downs. Although there was strength elsewhere in the world as well, Argentina's sales and profits were down "significantly" due to that country's recession.

Overall cash flow increased $82 million over year-ago levels. For the full year, cash flow was up $291 million, excluding special items, well beyond the $100 million to $150 million expected at the beginning of the year.

As reported, Avon on Friday said that it would close its jewelry manufacturing plant in San Sebastian, Puerto Rico, and will now purchase finished jewelry from Asia. The move will eliminate 320 jobs and marks the firm's exit from jewelry manufacturing.

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