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  • Avon Reports Full-Year 2007 Total Revenue Up 13% To $9.9 Billion
  • Avon Products, Inc. (NYSE:AVP) reported that fourth-quarter 2007 total re...
  • 2008-02-18
  • Avon Products, Inc. (NYSE:AVP) reported that fourth-quarter 2007 total revenue grew 17% year over year (9% in local currency) to $3.1 billion. All six operating regions contributed to the company's revenue growth. Sales of Beauty products rose 20% and Active Representatives increased 11%. Units sold were up 8% versus the prior-year quarter.


    Net income in the fourth quarter 2007 was $129 million compared with $184 million in the year-ago quarter. Earnings per share were $.30 versus $.41 per share in the prior-year quarter, or 27% lower. The fourth quarter 2007 results were significantly impacted by costs to implement the company's restructuring program (of which the final initiatives have been

    announced) as well as the final charges for its Product Line Simplification (PLS) program. Combined, these reduced EPS by $.34 per share versus $.13 per share in 2006.


    Andrea Jung, chairman and CEO, commented, "This quarter's results reflect the momentum we are gaining in our turnaround plan. The 17% revenue increase -- including the 20% growth in Beauty sales -- reflects the benefits of the significantly increased investment we've made in advertising over the last two years. I am also pleased with the 11% increase in Active Representatives that was driven by our investments in the Representative Value Proposition, such as growing our Sales Leadership program, increasing sales campaign frequency and improving commissions and incentives to our Representatives. Our results also reflect the strength of our diverse geographic portfolio, which is highly advantaged particularly in developing and emerging economies where we enjoy leading market positions."


    Fourth-quarter operating profit of $225 million decreased 21% from 2006's level of $282 million, while operating margin was 7.3%, versus 10.8% in the prior-year quarter. As previously announced, fourth-quarter 2007 operating profit included costs associated with the company's restructuring and PLS programs of $205 million, versus $85 million in the prior-year period. The 2007 fourth-quarter costs included $101 million of costs to implement restructuring and $104 million of costs associated with PLS. The 2006 fourth- quarter costs included $44 million of costs to implement restructuring and $42 million of costs associated with PLS.


    On January 8, 2008, Avon announced the final initiatives of the restructuring program under its turnaround plan, begun in late 2005. Avon expects to achieve annualized savings of approximately $430 million once all initiatives are fully implemented by 2011 - 2012, with these savings projected to reach $300 million in 2009, compared to the original objective of $300 million. Additionally, Avon reiterated that it expects to achieve annualized benefits in excess of $200 million each from its PLS program and Strategic Sourcing Initiative for a total of benefits in excess of $400 million from those two programs. Avon reiterated that it anticipates total costs to implement the restructuring initiatives to be approximately $530 million. The company has recorded approximately $444 million of those costs through the fourth quarter of 2007 and will record the remainder by the end of 2009.


    Fourth-quarter 2007's results included $108 million in advertising expense, a 21% increase over prior year, to support the launch of new products, such as Anew Ultimate Age Repair Night Cream and Elixir and the Christian LaCroix fragrances, as well as Representative recruitment advertising. Additionally, 2007's fourth quarter included an incremental $39 million of costs for initiatives to improve Avon's Representative Value Proposition (RVP).


    The quarter's effective tax rate of 34.2% compared with 2006's rate of 30.4%. The 2007 rate was unfavorably impacted by the geographic mix of restructuring and PLS costs. The prior-year's rate benefitted from the closure of tax years and audit settlements.


    Fourth-Quarter Regional Highlights


    In the North America region, fourth-quarter revenue grew 2% (1% in local currency) over that of the prior year. Sales of Beauty products were 6% higher. Active Representatives increased 3% as the company continued to implement initiatives to improve the Representative Value Proposition, offsetting negative impacts of rising gas prices and a slowing North American economy. Units sold were flat with the prior year. Operating profit decreased 21% versus the 2006 quarter, due to costs associated with the PLS program, and the region's operating margin was 6.8%.


    On broad-based strength, Latin America's fourth-quarter revenue rose 28% year over year (17% in local currency), with the markets of Brazil and Colombia both posting revenue growth in the range of 40%. Mexico continued to progress on its turnaround, with growth in both revenue and Active Representatives of 5% versus the prior-year period. The region's Active Representatives grew 12%, and units sold were up 12%. Operating profit

    increased 3% versus the 2006 quarter as profit on higher revenue was somewhat offset by costs associated with PLS, as well as increased advertising and RVP spending in the region. Latin America's fourth-quarter operating margin was 13.9%.


    Western Europe, Middle East & Africa achieved revenue growth of 22% (10% in local currency), due to continued strength in Turkey, where revenue grew over 50%, and the U.K., where revenue increased over 10%. Year over year, the region's Active Representatives rose 7% and units sold increased 10%. As a result of costs to implement restructuring, primarily in the direct-selling and distribution operations of continental Europe, the region recorded an operating loss of $6 million in the quarter compared with $19 million of operating profit in the prior-year quarter. Fourth-quarter 2007 operating margin was (1.3)%.


    In Central & Eastern Europe, fourth-quarter revenue rose 22% (11% in local currency). Russia was the largest contributor to the region's growth, with revenue growth in the high teens. The region's fourth-quarter 2007 Active Representatives grew 18%. Units sold increased 9%. Operating profit decreased 2% year over year, as costs associated with the PLS program more than offset the benefit of higher revenue. Fourth-quarter operating margin was 18.7%.


    Asia-Pacific revenue increased 8% (decreased 2% in local currency), with the Philippines contributing strong revenue growth driven by Sales Leadership. Revenue in Japan was 6% lower year over year as the company continues to execute a multi-year turnaround in that market. The region's Active Representatives were 8% higher and units sold rose 5% as compared with the prior year. Operating profit expanded 28% year over year, primarily as a result of lower overhead expenses. Operating margin in the quarter was 6.2%.


    Revenue in China grew 29% (22% in local currency) and units sold were 14% higher in the fourth quarter. Active Representatives were up 73% year over year. As a result of its revenue growth, China had operating profit of $6 million in the fourth quarter 2007, compared with an operating loss of $3 million in the prior-year quarter. The region's fourth-quarter operating margin was 6.8%. (Source: PR newswire)


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