Avon’s Sales Rise 4% in Second

Avon Products, Inc., New York, NY, reported record sales, earnings and cash flow in the second quarter of 2002. Earnings per share of $.64 exceeded the $.63 consensus estimate among Wall Street analysts. The company also said it was comfortable with the consensus estimate of $.47 per share for the third quarter and reaffirmed that it is on track to achieve its full-year target of $2.30 per share.

In the second quarter, earnings per share increased 12% to $.64, versus $.57 in the second quarter of 2001. Net income in the quarter rose 12% to $154.9 million, versus $137.7 million in the year-ago period.

Sales in the quarter increased 4% to a record $1.51 billion, compared with $1.46 billion in the second quarter last year. Excluding the impact of foreign currency translation, sales were up 10%, driven by a 12% increase in units and a 10% gain in the number of active representatives. The second quarter sales increase represents accelerating growth from the first quarter, when sales increased 2% in dollars and 8% in local currencies over the prior year.

Operating margin of 15.9% was down slightly from last year’s record level of 16.1%. Lower margins in Latin America and increased strategic spending on consumer marketing initiatives were offset by significant margin improvement from Avon’s Business Transformation initiatives, including supply chain improvements and overhead reductions.

Cash flow from operations was at a record level of $205 million, up $39 million from the second quarter of last year, due largely to a strong cash flow increase in the U.S., which has begun to benefit from its recent initiatives to improve supply chain efficiency.

Avon said the quarterly earnings increase was driven by continued outstanding operating performance in the U.S. and Europe. In addition, significant non-cash gains from the translation of U.S. dollar-denominated assets, mainly in Argentina and Venezuela, helped to offset the negative impact of weaker Latin American currencies on operating results in the region.

“Looking ahead, we are confident that the fundamental strength of our business will continue,” said Andrea Jung, chairman and chief executive officer. “We anticipate further local currency sales growth acceleration in the second half of the year as well as higher dollar operating profit growth, and we remain on track to achieve our stated target of double-digit earnings growth, before unusual items, for the third consecutive year.”

In the U.S., Avon’s largest market, sales in the second quarter rose 6% on top of the 6% sales gain recorded in the second quarter of 2001. Units increased 8% and the number of active Representatives grew 2%. Sales in the quarter benefited from high single-digit gains in color cosmetics and personal care products, while sales of jewelry rose in the high teens and apparel and accessories climbed over 20%. In addition, Avon Wellness generated sales growth in excess of 25%. Operating profit in the U.S. increased 11%, and operating margin expanded by 100 basis points to a record 21.7%.

In Europe, sales rose 20% in dollars and 18% in local currencies, driven by a 24% increase in units and a 22% increase in active representatives. The markets of Central and Eastern Europe generated sales growth approaching 50%, including Russia, which nearly doubled its sales versus the year-ago period. The U.K. also contributed to the region’s growth with a 6% sales gain. Europe’s operating profit grew 21% and operating margin improved by 20 basis points to 18.3%.

In Latin America, sales in the quarter declined 8%, but excluding the impact of foreign currency exchange, were up 10%, driven by an 11% increase in units and an 8% increase in the number of active Representatives. All major markets in the region- including Argentina-posted local currency sales increases, with double-digit gains generated by several markets, including Brazil and Mexico, the two largest markets in the region. In Argentina, sales and operating profit fell significantly as expected, but in local currency terms, sales rose slightly, reflecting a 13% increase in the number of active representatives. Latin America’s operating profit was down 11%, and operating margin declined 60 basis points to 22.7%.

In the Pacific region, Avon said growth in the second quarter accelerated year-over-year, compared with the first quarter, with sales up 11% in dollars and local currencies, driven by unit growth of 8% and a 9% increase in the number of active Representatives. All major markets contributed to the gains, with particular strength in China, Australia and Taiwan. The region’s operating profit grew 18%, and operating margin expanded by 100 basis points to 16.2%.

For the first six months of 2002, Avon reported earnings per share of $1.04, up 14% from $.91 in the first six months of 2001. Net income in the first half increased 14% to $251.1 million, versus $219.4 million in the year-ago period. Sales in the first half were up 3% to $2.89 billion, compared with $2.80 billion in the year-ago period. Excluding the impact of foreign currency exchange, sales rose 9% over prior-year.