Avon expects that for the third quarter, its sales should increase 11 per cent in both dollars and local currencies, driven by a projected 13 per cent gain in sales of Beauty products, as well as expected 10 per cent growth in the number of active Representatives and 14 per cent unit volume growth.
The international direct selling cosmetics company also said that operating profit in the third quarter is forecast to increase in the range of 20 per cent versus prior-year, including incremental consumer and strategic investments of $10 million. Operating margin is expected to expand in the range of 100 basis points, attributed to net benefits from the company's Business Transformation initiatives as well as operating leverage.
Earnings are expected to increase by 21 per cent to $.34 per share, and full-year earnings projected to be up 24 per cent to $1.72 per share. Both forecasts are consistent with the company's earlier guidance on July 28, and include the previously announced benefits from its tax and cash management strategies resulting in projected effective tax rates in the range of 31 per cent, as expected, in the third quarter and full-year.
Andrea Jung, Avon's chairman and chief executive officer, pointed out that growth had been experienced in all the international regions that, which was the driving force behind the sales growth, however, she did point out that domestic sales had not been so healthy. "This robust strength in our international business portfolio is fully offsetting softness in the US, where lower-than-expected consumer response to recent brochure offers is impacting results."
Looking ahead Jung said she expected sales in the US market to pick up, putting the company in a stronger position still. "The power of our global portfolio, coupled with the financial flexibility provided by our Business Transformation initiatives, position us well to achieve our 2004 earnings target," she said.
On a regional basis the company said that it was expecting sales for the US market in the third quarter to be 'flatish', compared to the 7 per cent experienced in the corresponding quarter last year. The company said this had been due to poor sales in the Beauty category, bought about by the failure of a recent colour promotion.
On the contrary, the Europe region is set to generate strong results in the third quarter, driven by continuing high growth rates in Central and Eastern Europe, where sales are projected to increase over 40 per cent. Russia is once more turning in an outstanding performance, with sales trending up over 70 per cent.
Furthermore the UK is contributing substantially to the region's growth due in part to tremendous consumer response to the recent launch of the first of three fragrances in the Today, Tomorrow, Always collection. Overall, the company said that Europe's third quarter sales should grow in the range of 30 per cent in dollar terms and over 20 per cent in local currencies, and dollar-denominated operating profit is forecast to increase more than 50 per cent, better than expected.
Avon said that in both Latin American and the Asia Pacific regions, the performance is expected to exceed expectations. China was earmarked for particularly growth, with sales for the third quarter expected to rise by 30 per cent.
Commenting on the fourth quarter outlook, Jung said that company had 'unprecedented' advertising support planned for the US market, which was expected to boost sales. Otherwise she said international growth is expected to give the company its fifth successive year of growth for the full year of 2004.