Avon Profit Up on Overseas Strength

Avon Products Inc. on Friday said its first-quarter profit edged higher, helped by new products and strong growth in international sales. But the company said earnings in the current quarter would fall short of analysts’ consensus estimate and said the outbreak of Severe Acute Respiratory Syndrome is affecting its business in China. Avon, however, backed its previous full-year outlook.

Avon posted net earnings in the quarter of $98.9 million. The company, which is trying to entice teen consumers with a catalog to be launched in August, last month had ratcheted up its earnings target by a penny.

Avon said it has started to notice an impact from SARS in China in the current quarter and scaled back its targets for about 25 percent of the region. China accounts for 2 percent of Avon’s total sales, and less in terms of profit.

“The issue is so unclear with everything going on day by day, it’s hard to project,” Andrea Jung, chairman and chief executive, said in a conference call with analysts.

Beijing has closed one of the city’s top department stores where Avon has a counter, she said. “I think our heads would be in the sand if we said there’s not going to be any impact in the second quarter” from SARS, Jung added.

Avon said it expects second-quarter earnings per share growth in a mid-single-digit percentage range, mainly reflecting unusually high foreign exchange gains last year that will not be repeated this year. Analysts have forecast 71 cents per share on average, which is about 11% above the 64 cents a share earned in the year-ago quarter.

Sales in the quarter advanced 7%, to $1.47 billion. It was Avon’s strongest increase since the third quarter of 2000. In local currencies, sales were up 12%.

The company, which markets to women in 143 countries through 3.9 million sales representatives, said international operations beat its own expectations, with sales up 11 percent and operating profit up 26 percent, driven by European and Asian regions. U.S. sales inched up 1 percent.

Avon expects overall sales in the second quarter to be up by about the same level as the first quarter on increases in units and a 3 percent rise in sales representatives. U.S. sales are seen rising by about 3 percent.