Avon Expects to Report Strong Second Quarter Results

Avon Products, Inc. said today that it expects to report strong sales and earnings growth in the second quarter of 2001, driven by accelerating momentum in its U.S. business and continuing increases in global beauty sales. Avon said that earnings for the quarter are tracking as expected, and that the company remains comfortable with the consensus estimate of $.57 per share. This would be a 10% increase versus the $.52 per share reported in last year’s second quarter.

Avon also said that it expects sales in the second quarter to increase in the mid-single digits versus last year. And, excluding the impact of foreign currency exchange, sales are expected to show a double-digit gain. That would represent accelerating year-over-year sales growth compared to first quarter, when Avon posted a sales increase of 3% in dollars and 8% in local currencies versus prior year.

Avon said it expects operating profit in the second quarter to increase at a rate slightly ahead of sales growth. Operating margin should continue to expand, even after continued significant increases in strategic spending on consumer marketing initiatives in the quarter, compared with prior year. This would be the 14th consecutive quarter of operating margin improvement for Avon.

In addition, Avon said the outlook for cash flow generation in the quarter was very positive, with an estimated increase of approximately $50 million over second quarter last year.

Commenting on the second quarter, Andrea Jung, Avon’s chief executive officer, said, “We’re very pleased that the momentum in our business is accelerating. We’re seeing dynamic growth on top of a very strong second quarter performance last year.”

“Beauty sales continue to grow faster than overall company sales, reflecting that our efforts to strengthen Avon’s brand image with consumers are working. Units are growing at a double-digit rate after growing 6% in the first quarter, and the number of active representatives is also increasing double-digits, with gains across all geographic regions,” Ms. Jung added.

“We’re especially pleased about the accelerating growth in the U.S. business, despite the challenging economic environment for consumers,” Ms. Jung noted. “In international regions, continued robust gains in Europe and further growth in Latin America are more than offsetting slight declines in Asia, due to foreign currency exchange and very challenging comparisons versus the first half of last year.”

In the U.S., Avon’s largest market, the company expects to report an approximate 5% sales increase in the quarter, on top of the 6% gain reported in the second quarter last year. The number of active representatives is expected to increase 3% in the quarter, a growth-rate well above the historical trend line. Avon said U.S. operating profits are expected to increase in line with sales growth in the quarter, reflecting ongoing strategic investments against the consumer in the period.

Outside the U.S., overall international sales should increase in the low-teens in local currencies, driven by strong unit growth, also in the teens. However, with the continuing strength of the U.S. dollar, the company expects sales and operating profit from international operations to be up in the mid-single digit range. “Overall, Avon is well-on-track for a successful 2001, on top of a stand-out performance in 2000. We remain comfortable with analysts’ consensus estimate of $2.09 for the full-year, versus $1.88 before unusual items in 2000,” Ms. Jung added.