02.06.07
Avon Products Inc. reported its fourth-quarter profit edged up from a year ago as the beauty products company struggled with restructuring costs.
The results beat analysts' forecasts, however, and Avon shares rose more than 5 percent in premarket trading.
The New York-based direct seller of cosmetics and other beauty products said it earned $184.1 million, or 41 cents per share, for the three-month period ended Dec. 31. That compares with $183.2 million, or 40 cents per share, in the year-ago period.
Revenues rose 9 percent to $2.62 billion from nearly $2.4 billion in the year-ago period.
Analysts polled by Thomson Financial expected earnings of 38 cents per share and revenues of $2.5 billion for the fourth-quarter.
"With 9 percent revenue growth in the fourth quarter, we continue to feel good about the progress we are making against our turnaround plan," said Andrea Jung, chairman and CEO in a statement. "The investments we are making in our business are clearly starting to deliver results."
In November 2005, Avon announced a multiyear restructuring plan involving steep job cuts, eliminating management layers to better react to market trends, realigning manufacturing centers and outsourcing work to countries where labor costs are cheaper.
Late last year, Avon launched two initiatives -- simplifying products lines with a focus on better performing and more profitable products, and expanding its global sourcing of products. Last month, Avon announced that it will close two of its distribution centers and build a new one as part of a restructuring of its U.S. distribution operations.
Jung said in a statement that the company's early actions so far have delivered more than $100 million in benefits for the year, all of which was invested to fuel sales. The company's goal is to save an excess of $300 million by 2009.
But in the short term, the company's profits are feeling the effects of the restructuring. Avon said the 2006 fourth-quarter operating profit was dragged down by approximately $44 million of net costs to implement the current phase of the company's restructuring program, particularly the realignment of Avon's North American distribution network. The quarter's results also included $42 million of incremental costs, related to the company's move to simplify its product lines.
The fourth-quarter results also reflected a $43 million in advertising to $89 million. The increase supported new product introductions such as Anew Clinical ThermaFirm and superFULL mascara as well as China's direct-selling launch.
In the North America region, fourth-quarter revenue rose 4 percent from the year-ago period and the number of products sold rose 1 percent. Active representatives increased 1 percent, marking the first time in nine quarters that this measure has been favorable compared to the prior year.
In Latin America, fourth-quarter revenue rose 13 percent. The region's revenue benefited from ongoing strength in Brazil, Avon's second-largest market. The region's active representatives rose 6 percent and the number of products sold increased 4 percent.
Western Europe, Middle East and Africa continued to achieve solid revenue growth, fueled by increases in nearly all markets, and importantly in Turkey and the U.K. Fourth-quarter revenue increased 10 percent. Both active representatives and the number of products sold rose 2 percent compared to the year-ago period.
In Central and Eastern Europe, revenue in the fourth quarter rose 17 percent. The region's active representatives increased 10 percent, while the number of units sold slipped 1 percent.
Revenue in Avon's Asia Pacific region slipped 2 percent in the quarter. The number of active representatives declined 7 percent and the number of units declined 6 percent. Revenues in China increased 28 percent, reflecting further expansion of the company's direct-selling business.
For the year, Avon earned $477.6 million, or $1.06 per share, down from $847.6 million, or $1.81 per share, in 2005. Revenue rose 8 percent to $8.76 billion from $8.15 billion a year ago.
