International sales boost Avon's 1st-quarter results
NEW YORK—Cosmetics company Avon Products Inc. said Tuesday its first-quarter profit rose 23 percent as international sales, particularly in Latin America, offset declining North American revenue.
The direct seller of beauty products said quarterly net income rose to $184.7 million, or 43 cents per share, from year-ago profit of $150 million, or 34 cents per share. Both periods included restructuring charges of 4 cents per share.
Total revenue grew 14 percent to $2.50 billion from $2.19 billion last year.
On average, analysts surveyed by Thomson Financial expected earnings of 44 cents per share on revenue of $2.43 billion. Wall Street estimates usually excluding one-time charges and gains.
"We were very pleased with the progress we made with our turnaround this quarter," said Andrea Jung, chairman and chief executive, during a conference call. "Revenues were up 14 percent, or 6 percent in local currencies, with strength in developing and emerging markets that more than offset the challenges in North America."
Brazil and Mexico were standouts, Jung said.
Latin American sales grew 32 percent to $864.3 million, while North American sales fell 6 percent to $593.6 million. The company said weak North American results were due to a difficult economy and service-related problems in filling representatives' orders.
Avon's total salesforce grew 14 percent, but rose just 2 percent in North America. Meanwhile units sold in North America fell 10 percent. The fact that gas prices are 30 percent higher year-over-year also likely hurt results, the company said.
Avon said it expects "weakness" in North America to continue in the second quarter, but not to the extent of the first quarter.
Charles Cramb, vice chairman, chief finance and strategy officer, said during the conference call the increase in sales representatives "remains a major driver in our overall business growth."
He reaffirmed guidance of achieving an operating margin near 2005 levels.
Citi Investment Research analyst Wendy Nicholson called the results a "high-quality beat."
She said in a note to clients that investors should be "relieved" about the margin guidance, which implies a margin of about 14 percent, which she believed "some had begin to question given the current global economic environment."
Elsewhere, sales were strong. Central and Eastern Europe sales rose 17 percent to $421.6 million. Western Europe, Middle East and Africa sales rose 17 percent to $317 million. Asia Pacific sales rose 9 percent to $217.4 million, while China sales rose 29 percent to $87.8 million.
Advertising expenses grew 14 percent to $82 million to support new products, including Anew Ultimate Age Repair Day Cream, and to recruit salespeople.
Avon reaffirmed it expects to earn $430 million annually once its turnaround program -- which involves job cuts, eliminating management layers, realigning manufacturing centers and outsourcing work to countries with cheaper labor costs -- is fully implemented by 2011 or 2012. It expects savings of $270 million in 2008 and $300 million in 2009.
Goldman Sachs analyst Andrew Sawyer said in a client note that the results were positive despite "U.S. snafus."
"A combination of strong emerging market trends and foreign exchange will likely drive upward revisions to full-year sales estimates, particularly after a solid first-quarter revenue beat," he said.
Other positives include the margin target affirmation and the fact that sales weakness is likely to moderate in the second quarter.
"Offsetting these positives, the U.S. supply-chain issues, the first-quarter margin miss and further modest inventory increases year-over-year still pose some uncertainty," he wrote.
Avon markets to women in more than 100 countries through 5.4 million independent sales representatives.
Shares rose 18 cents to close at $40.26 Tuesday.
