U.S., EUROPE BOOST AVON RESULTS

Byline: Jennifer Weitzman

NEW YORK — Strength in the U.S. and Europe helped overcome declines in Argentina and propel Avon Products to a sold double-digit increase in first-quarter net income.
The New York-based firm also announced it expects earnings growth in the first half to be higher than in the year’s back half. For the full year, Avon said it was not raising its expectations given the weak situation in Argentina. Despite problems in that South American market, Avon’s targeting double-digit earnings growth for the year, to $2.30 a share from the $2.09 reported in 2001. In addition, it said it expects double-digit sales growth throughout the year, driven by sales in the U.S., Brazil and Mexico.
The world’s leading direct seller of beauty products said Thursday that, in the three months ended March 31, net income jumped 17.7 percent to $96.2 million, or 40 cents a diluted share, 3 cents ahead of its own expectations as well as Wall Street’s consensus estimates. That compares with income of $81.7 million, or 34 cents, in the prior-year quarter.
Even with Argentina, total sales in the quarter rose 1.9 percent to $1.38 billion from $1.36 billion, but rose 8 percent in local currencies, driven by an 8 percent increase in both units and the number of active representatives. Sales were up in all regions except Asia, where they were flat on a dollar basis, and Latin America, where they were battered by “significantly lower results in Argentina.” In local currencies, they did manage increases in both regions, however.
Excluding Argentina, Avon’s sales rose 5 percent in dollars and 9 percent in local currencies.
In announcing its ninth consecutive quarter of either meeting or exceeding estimates, Avon’s chairwoman and chief executive officer Andrea Jung said on a morning conference call: “The year is off to a strong start, with the business momentum we sustained throughout 2001 continuing into 2002.”
Sales in the U.S., Avon’s biggest market, rose 8 percent. Domestic revenues benefited from the new Avon Wellness line, solid year-over-year growth in home entertainment and jewelry products and the rollout of Biologie, an antiaging product targeted to younger women. Operating profits in the U.S. were up 13 percent, while operating margin grew 80 basis points to 18.5 percent, the highest first-quarter level in over a decade.
“The success of the U.S. business has demonstrated our strategies are sound and we know what the growth levers are to sustain momentum in a competitive environment for the consumer dollar,” Jung said.
In Latin America, the company noted it was pleased the economic issues in Argentina were not spilling into other nations, as the region’s sales improved 6 percent in local currencies but declined 7 percent in dollars. Operating profit declined 16 percent in dollars and 8 percent in local currencies, mainly reflecting significantly lower-than-expected results in Argentina. The region’s operating margins dropped 180 basis points to 16.4 percent. Brazil’s results were particularly strong, with sales and operating profits in local currencies up 21 and 32 percent, respectively. In Mexico, unit sales gained 20 percent.
In Europe, sales grew 9 percent, or 14 percent on a local-currency basis, driven by the double-digit sales and operating profit increases in central and eastern Europe. Sales in dollars were flat in Asia, but rose 6 percent in local currencies, with growth in all major markets except Japan.

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