Avon Reports Modest Results

Avon Products Inc. (AVP: 29.24 -1.06 -3.50%) reported fourth-quarter results with earnings of 62 cents per share. Earnings were below the Zacks Consensus Estimate of 68 cents but up 14.8% from 54 cents reported in the prior-year period.

Total revenue increased 13.4% year over year to $3.1 billion, attributable to a 4% benefit from volume. The number of active representatives grew 11% during the quarter.

Sales of Beauty products increased 15%, due increases across all the three categories. Color Cosmetics increased 27%, Fragrance increased 11% and Personal Care increased 19%.

In North America, sales fell 7% as units sold declined 7% while active representatives were up 3%. In Latin America, sales grew 29% as units sold rose 3% and active representatives grew 10%.

Revenue in Western Europe, the Middle East & Africa increased 20%, due to a 19% growth in units sold and 17% growth in active representatives. Sales in Central and Eastern Europe fell 12% as units sold increased 11%, while active representatives grew 15%.

Quarterly sales growth in Asia Pacific increased 13%, as units sold were up 7% year over year and active representatives rose 4%. Sales in China decreased 8%, primarily due to a 1% decline in units sold. However, active representatives for the quarter increased 31%.

Gross margin for the quarter contracted 28 basis points (bps) to 62.7% versus 63.0% in the comparable prior-year quarter. Productivity gains, benefits from the company's Strategic Sourcing Initiative, and price increases were fully offset by 140 basis points of unfavorable transaction-exchange impact. The operating margin also declined 41 bps to 12.8% from 13.3% in the comparable prior-year quarter.

For the full year 2009, net cash provided by operating activities was $782 million. At the end of the year, Avon's total debt decreased by $42 million from the year-end level, to $2.4 billion.

Avon has six ongoing restructuring programs targeting a total of $1.08 billion in annualized cost savings. Its major programs include the 2005 Turnaround Plan (targeting $350 in cost savings), PLS - Product Line Simplification initiative ($200 million), SSI - Strategic Sourcing Initiative ($250 million) and 2007 Additional Restructuring Plan ($130 million).