NEW YORK — Avon Products Inc. has turned a corner.
The direct seller of beauty products ended the first year of its multiyear restructuring effort on solid ground, delivering a 9 percent increase in revenue in its fourth quarter.
"We feel very good about the progress we've made and the actions we'll take in 2007 and beyond to continue to aggressively transform the cost base of this company," chairman and chief executive officer Andrea Jung said during a conference call Tuesday. "We think the turnaround plan is the right one, and that we're taking the right actions."
A hefty increase in advertising spending fueled revenue growth of 9 percent in the quarter ended Dec. 31, to $2.62 billion from $2.4 billion in the year-ago period. Net income remained flat at $184.1 million, or 41 cents a diluted share, from $183.2 million, or 40 cents a share. Operating profit dipped 5 percent, to $282.4 million from $297.4 million, hampered by about $44 million in net costs tied to the restructuring program.
For the year, net income slid 44 percent, to $477.6 million, or $1.06 a diluted share, from $847.6 million, or $1.81 a share, on revenue that gained 8 percent, to $8.76 billion from $8.15 billion in the year-ago period.
Avon ramped up its advertising spending during the quarter by 95 percent, to $89 million, which fueled beauty sales by 11 percent. Highlights in the category included the Derek Jeter Driven fragrance, which contributed $10 million in sales during the quarter, according to Avon.
Last year, Avon increased its advertising spending by 83 percent over the prior year, to $249 million, outpacing original plans to increase levels by 50 percent.
Credit Suisse analyst Filippe Goossens noted, anecdotally, that during a recent visit to Argentina, he saw Avon ads at bus stops in markets outside Buenos Aires, indicating stepped-up efforts to expand the business. "Avon will have to keep advertising at the levels we're seeing right now because it's in a very competitive environment," said Goossens, adding that innovation, execution of the restructuring program and accelerated ad spending would remain critical for Avon.
Throughout 2006, Avon announced a string of restructuring initiatives, including "delayering" top management ranks, reducing stockkeeping units through the Product Line Simplification program and streamlining the U.S. distribution network.
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