Avon’s Third Quarter Numbers Are In

Avon Products, Inc. says its third-quarter 2014 results show that total revenue fell 8% to $2.1 billion, increased 1% in constant dollars. Total units decreased 4% and price/mix was up 5% during the quarter. Active Representatives were down 4%, while average order² increased 5%.

Beauty sales declined 9%, but increased 1% in constant dollars. Avon’s fashion & Home sales declined 11%, or 4% in constant dollars.

“We began the year with the expectation that the second half of 2014 would show improvement relative to the first half and Avon's third-quarter results are consistent with modest improvement on both top and bottom line,” said Sheri McCoy, CEO of Avon Products, Inc. “We saw good results from our EMEA region, while sluggish performance in Brazil contributed to softer results in Latin America. Despite the strong headwinds in a number of markets, we continue to make progress on Avon's turnaround journey.”

Third-quarter 2014 gross margin was 61.9% and Adjusted gross margin was 62.0%. Adjusted gross margin was 110 basis points lower than the prior-year quarter, primarily due to the unfavorable impact of foreign exchange driven by Europe, Middle East & Africa and Latin America, and higher supply chain costs, primarily from high-inflation countries. This was partially offset by the favorable net impact of mix and pricing, primarily due to inflationary pricing in Latin America.

Operating profit was $188 million and operating margin was 8.8% in the quarter. Adjusted operating profit was $198 million and Adjusted operating margin was 9.3%, up 390 basis points from the third quarter of 2013. Adjusted operating margin was favorably impacted by the net benefit of Value Added Tax (“VAT”) credits in Brazil and lower expenses associated with employee incentive compensation plans. The increase in Adjusted operating margin was also due to lower expenses related to the Service Model Transformation (“SMT”) project, as well as benefits from other cost savings initiatives.

Third-quarter 2014's net income from continuing operations was $92 million compared with a net loss from continuing operations of $6.4 million for the third quarter of 2013. Third-quarter 2014's adjusted net income from continuing operations was $99 millioncompared with $60 million for the third quarter of 2013.

Avon's net debt (total debt less cash) at September 30, 2014 was $1.8 billion, up $191 million from the year-end 2013 level, and $172 million lower than at September 30, 2013.