Avon Reports Double-Digit Sales Gain

Avon Products reported that earnings per share increased 27% to $1.77 per share, versus $1.39 per share in 2004. Sales rose 13% in 2004, or 10% in local currencies, to a record $7.66 billion, versus $6.77 billion in 2003. Sales of beauty products grew 17%, with increases in all categories: skin care up 20%; fragrance up 13%; color cosmetics up 14%; and personal care up 24%. Active Representatives rose 11% to 4.9 million and units increased 13%. Net income in 2004 was $846.1 million, up 27% from $664.8 million in 2003.

Cash flow from operations reached a record $883 million for the year, well surpassing the company’s upwardly revised 2004 target of $850 million. In recognition of the very healthy levels of cash flow that the company consistently generates, Avon today is announcing an 18% increase in its quarterly dividend and plans for a new $1 billion, five-year share repurchase authorization. The dividend increase comes on top of a 33% increase in 2004, for a cumulative 57% increase in the dividend over the two-year period.

In commenting on 2004 results, Andrea Jung, Avon’s chairman and chief executive officer, said, “We are extremely proud to have achieved double-digit topline expansion in local currency for the fifth consecutive year and earnings per share growth of 20% or more for the third consecutive year. Our 17% increase in Beauty sales over last year’s strong 15% increase, coupled with continued double-digit gains in active Representatives, reflects the success of our strategies to build the Avon brand and drive growth in our direct selling channel.

“The consistent strength of our consolidated geographic portfolio, together with the tremendous level of cash that our business now generates — more than double the level of four years ago — should provide a very solid foundation for unleashing further growth as we continue to move forward with Avon’s transformation,” Ms. Jung concluded.

For the fourth quarter EPS of $.61 per share, as expected, up 11% from $.55 per share in the fourth quarter of 2003. Avon said that dollar-denominated and local-currency sales in the fourth quarter increased 10% and 7%, respectively, with sales of Beauty products advancing a healthy 16%, well ahead of overall dollar-sales growth. Units and active Representatives both rose 10% in the quarter. Fourth-quarter operating profit grew 6%, as expected. Operating margin contracted 70 basis points, to 17.8%, after an incremental $37 million in consumer and strategic investments. Net income in the quarter rose 11% to $288.8 million, compared with $261.3 million in the fourth quarter of 2003. The quarter’s results included $.03 per share negative impact from a non-cash charge for the writedown of securities available to fund select benefit plan obligations. This was offset by a $.02 benefit from a lower-than-anticipated tax rate in the quarter of 25% and a $.01 favorable impact from the reversal of previously recorded restructuring charges.