STOCK BUYBACK FUELS AVON PROFIT INCREASE

Byline: Evan Clark

NEW YORK — Citing solid gains across most geographic regions, Avon Products Inc. reported healthy second-quarter earnings that topped Wall Street estimates.
Earnings rose 2.6 percent to $124.5 million from $121.4 million, but an aggressive stock buyback program lifted earnings per share by 13 percent to 52 cents from 46 cents. Wall Street was looking for 51 cents on average.
Operating profits rose 12 percent to $219.8 million from $195.8 million the year before, with the bottom line impeded by higher interest costs. Sales climbed 9.5 percent to $1.38 billion from $1.26 billion a year ago.
Andrea Jung, president and chief executive of Avon Products, said in a statement: “All geographic regions contributed to the sales and profit increase, and we are particularly pleased to see continued solid sales and customer growth in large established markets like the U.S. and U.K.”
The U.S. market, boosted by double-digit growth in color cosmetics and fragrance products, posted a 6 percent increase in sales. Operating profits were up 6 percent, and operating margin was even with last year despite “significantly higher spending on strategic initiatives such as consumer advertising and sampling, as well as programs to contemporize Avon’s direct-selling system.”
In Europe, sales rose 6 percent, or 16 percent excluding foreign currency translation. Operating profits increased 13 percent, led by a 35 percent hike in Central and Eastern Europe.
In the Pacific region, sales jumped 17 percent, or 15 percent excluding foreign currency translation. Operating profits were up 29 percent. Japan, the largest market, “continues to significantly improve profitability and posted its second consecutive quarter of solid local currency sales growth.”
Sales in the Latin America region rose 12 percent, or 18 percent excluding foreign currency translation, while operating profits rose 13 percent. This emerging market was fueled by double-digit growth in the region’s two largest markets, Mexico and Brazil. Active representatives in the region increased 9 percent and units were up 4 percent.
Jung said the results “further demonstrate the underlying health of our business and the effective implementation of our strategic initiatives, both in the U.S. and internationally.”
Heather Murren at Merrill Lynch was impressed that Avon’s representative and unit count were up almost across the board. “They’re getting the bulk of their business very right and that’s what’s important,” she said.
Amy Low Chasen at Goldman Sachs said that the quarter was strong and that volume numbers were higher than she expected, but she added: “The critical issue is whether or not they’ll be able to effectively execute their plan to expand into Internet and retail.” As reported, Avon started a retail initiative last year, and earlier this year indicated it was looking to partner with a retailer on an exclusive basis.
Earnings for the half reached $199.3 million, or 46 cents, against $72.5 million, or 27 cents, a year ago, but the year-ago period included a $46 million aftertax charge for inventory writedowns. Excluding this charge, earnings inched up 2.5 percent. Sales increased 9.3 percent to $2.7 billion from $2.47 billion a year ago.
Avon Products is a manufacturer and marketer of beauty-related products, fashion jewelry, apparel, gifts and collectibles. Brands include Anew, Skin-So-Soft, Avon Color, Far Away, Rare Gold, Perceive, Avon Skin Care and Women of Earth.

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