Avon Products First-Quarter Earnings Rise

Avon Products Inc., the world’s No. 1 direct seller of beauty products, said on Friday profits rose in the first-quarter, driven by higher sales of cosmetics, fragrance, and toiletry products, and reaffirmed its forecasts for the second quarter and full year.

The New York-based company, whose products include Anew and Skin-So-Soft, earned $82.0 million, or 34 cents a diluted share, compared with $70.4 million, or 30 cents a share, a year earlier. Revenues rose 3% to $1.35 billion from $1.31 billion a year earlier. Excluding the effects of foreign currency exchange, sales increased 8%.

Despite a weak economic environment, U.S. sales increased by 2%. The U.S. region also posted a 3% increase in the number of active representatives, the highest growth rate in recent years. The Europe region increased sales by 9%. Excluding the impact of currency, sales rose 17%.

Sales in Latin America grew 6%, or 12% excluding the currency impact. As expected, Argentina and Chile continued to post weak results due to overall economic conditions, but Mexico, Brazil, Venezuela and the countries of Central America all delivered double-digit local currency sales growth.

In the Pacific region, sales declined 4%, but rose 7% excluding currency impact. The results for the region were hurt by Taiwan, where economic indicators are at the lowest level since 1995. Sales in China, however, grew by 40%, reflecting a rapid retail expansion after a government ban on direct selling was imposed in 1998.

Avon plans to launch its first U.S. retail venture this fall. Avon said it was comfortable that it would meet or exceed full-year estimates, despite the risk of economic problems in Argentina and Brazil.

“The main thing everyone has been focused on was: If Argentina devalues, how will that affect Brazil and so on. But, looking at what they’ve assumed, it’s still expected to be a double digit year,” said Credit Suisse First Boston analyst Carol Wilke. “They have very strong hedges in place and have demonstrated in the past that they manage currency better than a lot of companies,”Ms. Wilke added.

“Argentina fears” stemming from the potential for a currency devaluation and debt default have already impacted Avon shares since March, UBS analyst Andrew McQuilling said in a research note.