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NEW YORK — With a 27.3 percent gain in 2004 earnings and a fourth-quarter profit increase of 10.5 percent, Avon Products Inc. chairman and chief executive officer Andrea Jung made good on a prediction she made last April when she said the year would “reflect the true impact of Avon’s transformation.”

And thanks to a bevy of product launches in the pipeline, including a venture into plus-size intimates, the beauty products giant isn’t planning to slow down in 2005.

Avon said Tuesday that full-year 2005 earnings could beat analysts’ current earnings forecast, while cash flow from operations is predicted to reach a record $1 billion.

“The consistent strength of our consolidated geographic portfolio, together with the tremendous level of cash that our business now generates — more than double the level of four years ago — should provide a very solid foundation for unleashing further growth as we continue to move forward with Avon’s transformation,” Jung said in a statement. The “transformation” refers to a strategy the company implemented in 2001 to improve efficiencies.

In the fourth quarter, New York-based Avon earned $288.8 million, or 61 cents a share, matching the Wall Street consensus, which compares with $261.3 million, or 55 cents, in the year-earlier quarter. Total revenues in the three months ended Dec. 31 were $2.3 billion, up 10 percent from $2.1 billion a year ago. By division, Avon said sales of beauty products increased 16 percent to $1.5 billion, while sales of Beyond Beauty dropped 5 percent to $375.7 million.

Regionally, total sales in the U.S. fell 5 percent in the quarter to $642.1 million due predominantly to a 16 percent decline in the Beyond Beauty category, whose toys and gifts categories will be repositioned in 2005. European sales, however, rose 26 percent to $694.7 million, with Central and Eastern Europe performing strong.

In full-year 2004, Avon posted earnings of $846.1 million, or $1.77 a diluted share — also matching analysts’ estimates — compared with $664.8 million, or $1.39, in the prior year. The company said earnings per share in both the fourth quarter and full year 2003 were restated to reflect a two-for-one stock split, which occurred in May 2004.

This story first appeared in the February 2, 2005 issue of WWD. Subscribe Today.

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Avon’s total 2004 revenue rose 13.2 percent to $7.7 billion. Color sales rose 14 percent, personal care sales increased 24 percent and fragrance sales were up 13 percent, helped by the launch of Today, Tomorrow and Always in the fourth quarter.

Beauty product sales accounted for 69 percent of the company’s total sales in the year. “The story in 2004 was clearly Anew Clinical, which continued to roll out globally supported by a number of successful line extensions. In total, the Clinical franchise alone delivered over $200 million in sales for the year,” Jung said on a Tuesday conference call with Wall Street.

She also revealed that Avon plans “two major Clinical line extensions in the second quarter, plus another Anew blockbuster launch in the fourth quarter.” Jung added that Avon will be launching a Beauty on a Budget store in its brochure in the second quarter and said the company plans to enter the plus-sizes intimate apparel market.

Further, Jung confirmed that Avon will launch what it called a “foundations” business in the U.S. in the third quarter via a partnership with Sara Lee Corp. to offer Bally and Playtex bras.

Looking to financial results in 2005, Avon forecast earnings of $1.95 to $2.00, versus analysts’ expectation for $1.98. Results in the U.S. are expected to remain soft but ramp up in 2006, Jung said, as its repositioning takes hold. Revenues in 2004 are seen rising 10 percent, while sales are expected to grow over 20 percent in Europe.

In the first quarter, Avon forecast income of 35 cents, which meets analysts’ estimates,  compared with 31 cents in 2004.

Avon ended 2004 with a 18.4 percent jump in cash flow from operations to $882.6 million. Citing the cash flow increase, the firm raised its quarterly dividend by 18 percent and announced plans for a new $1 billion, five-year share repurchase program.

Investors rewarded shares of Avon, sending the stock price up 3.4 percent to close at $43.64 in Tuesday’s session on the New York Stock Exchange.