AVON WARNS NET WILL BE LOWER THAN EXPECTED, SHARES TAKE DIVE

Byline: Melanie Kletter

NEW YORK — Avon Products Inc. took a beating on Wall Street Wednesday. Its shares fell nearly 28 percent after the beauty company said fourth-quarter earnings would come in below expectations due to weakness in Latin America and the U.S.
The direct-selling company said profits probably would come in even or slightly ahead of last year’s profits of 56 cents a share, but well below Wall Street average estimates of 63 cents a share.
Earnings for the year are expected to come in about 10 percent over last year’s, below the company’s target of 16 percent, Charles R. Perrin, Avon’s chairman and chief executive, said in a conference call with analysts. Last year, Avon earned $1.48 a share.
Shares of Avon fell 9 7/8 to 25 13/16 on the New York Stock Exchange.
“We had been anticipating dollar-dominated sales growth of around 5 percent in the fourth quarter, but early signs indicate sales will more likely be up in the 2 percent range,” Perrin said in a statement.
Perrin said economic pressure and currency volatility in Latin America probably would cause results to come in lower than planned in Mexico and Brazil. Avon’s Mexican business has been hurt by significant discounting among some of its retail competitors, Avon executives noted in the call. Currency volatility in Brazil’s real has been the biggest factor for weakness in that country.
International accounts for about two-thirds of Avon’s business.
In the U.S., weakness in early sales of holiday gifts has caused the company to revise its sales outlook. Perrin said Avon now expects U.S. sales in the fourth quarter to be up in the low single digits instead of the 5 percent increase it had been expecting.
Perrin attributed the weakness in seasonal gifts in part to late gift buying. Weakness in holiday gifts is offsetting an upsurge in its cosmetics, fragrance and toiletries business, which has posted declines in the first two quarters of the year.
“This is a strong company with solid international business, but we do have a short-term U.S. problem,” Perrin said on the call. “Avon’s business remains healthy around the world, but we clearly anticipate a couple of slow-growth quarters in the U.S. We are confident that we can get the business back on track in 2000.”
For 2000, sales growth companywide should be about 5 or 6 percent, Avon executives said on the call. Sales are expected to benefit from a turnaround in Asia and improving markets in Latin America, as well as from incremental sales in several new categories such as hair care and jewelry. The company also plans to put more resources into advertising and marketing to attract new customers.
This is the second warning Avon has issued this month. In early September, the direct beauty seller said third-quarter sales would rise less than expected due to weakness in the U.S. and Brazil. In the current third quarter, Avon expects to report an earnings gain of 13 percent to 34 cents a share, which would match expectations.
On Wednesday, PaineWebber cut its rating on the company to “neutral” from “attractive,” and Donaldson, Lufkin & Jenrette downgraded the stock to “market perform” from “buy.”
In the second quarter ended June 30, earnings rose 9 percent to $121.4 million, or 46 cents a diluted share, from $111.4 million, or 42 cents last year. Sales inched up 0.8 percent to $1.26 billion from $1.25 billion.
Avon also said it expected to “significantly accelerate” its share repurchase program this year and in 2000. The company has more than $700 million remaining in its current authorization.