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Sales and Earnings Disappoint at Avon

Fourth quarter results hampered by emerging market problems.

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By: TOM BRANNA

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Avon Products Inc.’s fourth-quarter earnings fell 15% because of service disruptions in Brazil and weakness in Russia. For the quarter, the company said it earned $229.5 million, or 53 cents a share, compared to $269.4 million, or 62 cents a share, in the year-ago period.


Sales rose just 1% to $3.14 billion from $3.1 billion. On an adjusted basis, Avon said it earned 59 cents a share, versus 68 cents a share a year ago. Analysts polled by FactSet Research were looking for earnings of 66 cents a share.


“As we closed out the year, we continued to experience disappointing sales results which were negatively impacted by service disruptions in Brazil and weak performance in Russia,” CEO Andrea Jung said.


It was the second consecutive quarter of disappointing results from Brazil, usually a stronghold for Avon. Last quarter, the company said relaunches of makeup such as mascara and lipstick went poorly.


Revenue from North America, 20% of Avon’s total, rose 1% to $644.4 million, although its acquisition of Silpada, a direct jewelry seller, helped sales by 11%. Unit sales dropped 14%.


Revenue from Latin America, Avon’s largest region accounting for 40% of its business, rose 5% to $1.27 billion.
The steepest drop came from China, where revenue fell 45% to $55 million as the company continues to transition to a direct-selling system more similar to the one it uses elsewhere. Revenue was hurt by a 44% drop in unit sales as the company advertised less.
Elsewhere, revenue rose 9% it Western Europe, the Middle East and Africa to $477.6 million and rose 8% in Asia Pacific to $215.2 million. Revenue slipped 6% in Central and Eastern Europe.
For the year, net income fell 3% to $606.3 million, or $1.29 per share, from $625.8 million, or $1.45 per share. Revenue rose 6% to $10.86 billion.
Avon cut prices during the recession but has begun raising them again. It has been focusing on acquisitions for growth and bought skin care products company Liz Earle and silver jewelry direct seller Silpada Designs in 2010.

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