Byline: Evan Clark / With contributions from Arnold J. Karr

NEW YORK — Avon Products Inc. recorded fourth-quarter earnings in line with estimates on strong sales from its core beauty business.
Also on Thursday, Alberto-Culver reported that net earnings for its first quarter ended Dec. 31 dropped 12 percent but were up 13.5 percent, excluding the extraordinary gain from the sale of a trademark in the year-ago period.
Avon’s net income for the quarter was $197.5 million, or 81 cents a diluted share. Excluding extraordinary gains of $38.2 million, or 16 cents a share, earnings were $159.3 million, or 65 cents, a 12.4 percent improvement over year-ago results of $141.7 million, or 58 cents.
The adjusted results fell in line with Wall Street’s consensus estimate. Shares of Avon closed down $1.06, to $42.63, on the New York Stock Exchange Thursday while Alberto-Culver’s dropped 19 cents to $38.19.
Unusual items for the quarter included a 16 cent a share pick-up from a U.S. income tax refund and a 2 cent increase from a required accounting change for revenue recognition. These gains were partially offset by the one-time 2 cent a share expense related to asset writedowns and executive reorganization.
Sales for the quarter ended Dec. 31 were $1.65 billion, a 5.2 percent improvement over sales of $1.57 billion during the 1999 fourth quarter. The more recent results include $15 million from the adoption of the accounting change.
The global firm said, excluding the negative effects of currency translation, sales rose 10 percent.
Sales growth in the quarter was propelled by a 7 percent increase in sales of the company’s core cosmetics, fragrances and toiletries lines. Total units for this division worldwide increased 6 percent.
Leading categories overall included global skin care and color cosmetics, both up 13 percent in sales, while hair care was up 14 percent against the year-ago period. The company said the growth in these categories was three times the overall industry growth rate.
Avon said that the gift category, though, underperformed during the quarter and was soft through the latter half of 2000.
Andrea Jung, chief executive, told analysts on a conference call Thursday that the company’s “fundamentals remain solid.” Total active sales representatives increased 14 percent overall with a 2 percent increase in the mature U.S. market against year-ago levels.
Sales and unit volume for the company’s U.S. division each grew by 4 percent during the quarter. Beauty products showed 8 percent sales growth with skin care products bounding 34 percent over the year-ago quarter. The company, built on its direct marketing distribution, is currently gearing up for the U.S. introduction of its Becoming cosmetics line after having tried its hand at retail in its representative-owned and licensed mall kiosks.
The Europe region saw sales rise 13 percent, but operating profits were down 10 percent , attributed by Jung to currency weakness and difficult comparisons with the prior year. On a local currency basis, operating profits were up slightly, reported the ceo.
Central and Eastern Europe and Russia saw regional operating profits jump more than 40 percent on a more than 30 percent sales increase.
The Latin American regions saw sales during the quarter rise 14 percent, with operating profits surging 18 percent over year-ago results. Sales and operating profits each rose 15 percent in Mexico. In Brazil, sales also rose 15 percent, but with a 28 percent jump in operating profits. The Asia-Pacific region saw sales fall on a dollar basis but rise more than 10 percent, excluding currency translations.
Jung said she was “very pleased” with international sales, up 9 percent on a constant-dollar basis and 4 percent in local currencies. This drove operating profits up 11 percent over year-ago levels.
Robert Corti, executive vice president and chief financial officer, noted on the call, “We did make significant improvements in inventories for the quarter reducing Dec. 30 balances by $100 million. We’ve turned a corner on inventories. One of the top priorities for 2001 is to further reduce the level of inventories needed by our business while still maintaining high service levels.”
While he noted the fourth-quarter inventory improvement was offset by less cash availability from accounts payable, he anticipated cash flow for 2001 would be increased by $100 million to $150 million.
Analysts on the call asked Jung if she had reservations about the second-half launch of Becoming, a full cosmetics brand, in Sears, Roebuck & Co. and J.C. Penney in light of recent store closings at both of those chains.
“We really view these as very positive moves from both the Sears and Penney’s management points-of-view,” replied Jung. “We think it’s a wise financial decision on their part to close some of their less productive stores.”
She noted that Penney’s and Sears operate approximately 1,100 and 800 units, respectively.
“The doors that we are planning to open [with Becoming], never mind the first year, but even into the second year, are obviously their top A and B stores in those cases and not their nonproductive stores.”
Jung said later, “We looked at this as huge customer bases with huge customer traffic in their existing stores and that is a captive pool of customers that we are looking at that doesn’t rely on having to bring in new traffic.”
Net income for the entire year rose 58.2 percent to $478.4 million, or $1.99 a share, against $302.4 million, or $1.17, in 1999. Excluding one-time items, net income rose 6.4 percent to $451.5 million compared to year-ago results of $424.3 million.
Sales for 2000 were up 7.3 percent to $5.67 billion against $5.29 billion a year ago. Excluding the effects of currency translation, the company said sales were up 11 percent over the prior year.
In 2001, New York-based Avon is projecting mid-single-digit sales growth and double-digit earnings growth in line with Wall Street’s expectations of $2.10 to $2.12 per share.
During 2001, Avon plans to spend between $40 million to $50 million more on marketing, including a 15 percent to 20 percent increase in spending on advertising as well as on new brochures, increased focus on sampling and continued investment in its Internet operations.
The Alberto-Culver Co. reported that first-quarter net income totaled $23.6 million, or 41 cents a diluted share, a penny above consensus estimates. While 12 percent below the $26.8 million, or 48 cents a diluted share, recorded during the year-ago quarter, the first-quarter profits were 13.5 percent higher than the comparable year-ago figure after exclusion of an extraordinary after-tax gain of $6 million, or 11 cents, on the sale of a trademark for $10 million in 1999.
Revenues rose 12.9 percent in the quarter, to $593.6 million from $525.8 million.
At the company’s annual meeting Thursday, Howard Bernick, president and chief executive, credited the company’s North American consumer goods and its Sally’s Beauty System Group with providing the momentum for the increases in sales and operating income.
The company also increased its annual dividend 10 percent, to 33 cents a share from 30 cents, payable Feb. 20 to shareholders of record Feb. 5, marking the 17th consecutive year that the company’s cash dividend had been increased.
While international business had been negatively affected by unfavorable currency exchange rates, Bernick noted that Alberto VO5, St. Ives, Tresemme and the Sally’s unit all produced double-digit sales and profit growth in the quarter.
“Improved execution, along with a sharper focus on our core brands, innovative marketing and stronger relationships with our trading partners, continues to produce good results for our North American businesses,” Bernick told shareholders.

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