Avon Reports Increased Earnings; Raises Outlook

Avon Products Inc. reported that earnings in the third quarter 2004 increased 32% to $0.37 a share,$.03 ahead of earlier guidance due to higher-than-anticipated operating profit.

The company has raised its outlook for full-year 2004 by 26%, to $1.75-1.77 a share. Thisoutlook reflects the third quarter’s results, as well as potential for a lower effective fourth quartertax rate of 29-30% due to increased benefits from the company’s previously-announced tax andcash management strategies.

Sales in the third quarter increased 11% to $1.78 billion, up from $1.6 billion in the year-ago period.Excluding the impact of foreign currency exchange, sales rose 10%. Units and active representativesincreased 15% and 11%, respectively, and sales of beauty products rose 15%. Operating profit in thequarter increased 25%, exceeding earlier expectations. Net income in the quarter increased 33% to$176.9 million, compared with $133.1 million in the year-ago period. Net cash provided by operationsin the third quarter 2004 was $139.7 million, $29.3 million above the prior-year quarter.

Andrea Jung, Avon’s chairman and chief executive officer said, “We are extremely pleased with thecontinuing strength of our global portfolio which has enabled us to deliver another quarter ofoutstanding results, despite sluggish sales in the U.S. Europe, Latin America and Asia Pacificall delivered double-digit growth in local-currency sales, units and dollar operating profit. Additionally,each of these regions achieved at least 200 basis points of operating margin expansion. The overalltop and bottom line strength across these three key geographies contributed to thehigher-than-anticipated performance in the third quarter.”

Looking ahead to the fourth quarter, Avon said that it expects double-digit sales growth in bothlocal currencies and dollars, in line with the third quarter. Growth in beauty sales should againoutpace overall sales growth by at least two points, executives said, and units and activerepresentatives should each increase by double digits. Operating profit is expected to grow in linewith sales, even after an incremental $30 million in consumer and strategic investments includingdoubling the advertising spend to sustain high growth in Russia, China, Brazil and the U.K.

Commenting on the full-year, Ms. Jung said, “We are pleased to raise our full-year earningsexpectation to $1.75 per share, and as high as $1.77 per share based on the increased probabilityfor certain benefits from our previously announced tax and cash management strategies. In additionto the stronger earnings, we also anticipate that full-year cash flow from operations should exceedour targeted $800 million, compared with $745 million in the prior-year period.

“We are extremely pleased that the exceptional strength of our global geographic portfolio and theflexibility it provides will enable us to deliver another year of standout performance despite a difficultU.S. consumer environment and challenges in the U.S. Beyond Beauty segment. Going forward,we intend to fully exit certain Beyond Beauty categories and significantly restructure others as werestore the U.S. business to healthy growth.

“We are very proud that 2004 is shaping up to be the third consecutive year in which earningswill grow at least 20%. Looking ahead, we see another strong year in 2005, and again expect toachieve our long-term annual targets of double-digit local-currency sales growth and at least 10%earnings per share growth as the transformation of Avon continues to take hold around the world.”