US market continues to drag Avon down

- Last updated on GMT

Related tags: Cent, Revenue

Avon has reported that sales grew ten per cent during 2004,on the
back of a continued growth during the fourth and last quarter. But
currency weakness and a slack US market continue to hamper
otherwise healthy results.

The company said that fourth-quarter operating profit grew 6 per cent, as previously predicted. However, operating margin contracted 70 basis points, to 17.8 per cent, after an incremental $37 million (€28.5m)in consumer and strategic investments.

Net income in the quarter rose 11 per cent to $288.8 million, compared with $261.3 million in the fourth quarter of 2003.

For the full-year, Avon​ reported that sales rose 13 per cent in 2004, or 10 per cent in local currencies, to a record $7.66 billion, against $6.77 billion in 2003. Sales of Beauty products grew 17 per cent, with increases in all categories: skin care up 20 per cent; fragrance up 13 per cent; colour cosmetics up 14 per cent; and personal care up 24 per cent. Net income in 2004 was $846.1 million, up 27 per cent from $664.8 million in 2003.

Cash flow from operations reached a record $883 million for the year, well surpassing the company's upwardly revised 2004 target of $850 million. In light of what it called 'healthy levels of cash flow' the company announced an 18 per cent increase in its quarterly dividend and plans for a new $1 billion, five-year share repurchase authorisation.

Andrea Jung, Avon's chairman and chief executive officer, said, "We have achieved double-digit topline expansion in local currency for the fifth consecutive year and earnings per share growth of 20 per cent or more for the third consecutive year. Our 17 per cent increase in Beauty sales over last year's strong 15 per cent increase, coupled with continued double-digit gains in active Representatives, reflects the success of our strategies to build the Avon brand and drive growth in our direct selling channel."

Jung went on to point out that the company now generates more than double the level of cash that it was achieving four years ago, a situation that she believes will unleash further growth in the future.

On a regional basis the results were not altogether as encouraging, though, with a continued downturn in the all-important US market sales putting a chink in the armour. The company said that in during the fourth quarter US sales were down 5 per cent, largely due to a 16 per cent decline it its Beyond Beauty category. Operating profit in turn dropped from $133 million during the corresponding quarter in 2003, to $101 million in 2004.

However, bucking this trend Europe, sales and operating profit in Europe rose 26 per cent and 36 pent, respectively, based on strong operating performance. Excluding the impact of currency translation, sales increased 16 per cent.

Operating margin in the region expanded 210 basis points to a record 27.1 per cent including an expected gain of $6.5 million from the sale of a property in Western Europe. Central and Eastern Europe drove the region's operating performance, with sales and operating profit up in the range of 35 per cent and 30 per cent, respectively, led by Russia, where sales exceeded $400 million for the full-year 2004. The markets of Central and Eastern Europe together contributed in excess of $1 billion in annual revenue, one year ahead of schedule.

In Latin America, sales and operating profit increased 12 per cent and 11 per cent, respectively, primarily driven by strong performances in Brazil and Venezuela. Sales in local currencies were up 14 per cent.

In Asia Pacific, sales and operating profit both rose 9 per cent. Sales in local currencies were up 7 per cent. The region's operating margin was 18.6 per cent in the quarter, flat with the year-ago period, including greater than planned margin investment to drive further penetration in China. China contributed significantly to the region's growth in the quarter, with sales climbing almost 50 per cent to reach nearly $225 million for the full-year 2004.

Looking ahead the company said that it expects to deliver another year of growth in 2005, reflecting ongoing strength in its international operations. Local-currency total revenues are projected to grow 10 per cent year over year. The US market is expected to continue to fall throughout 2005, but this should be counterbalanced by strong growth being maintained in all the other markets, particularly Europe.

Related topics: Business & Financial

Related news

Show more

Follow us

Clean & Ethical Beauty Video Series

NEW: EPISODE 4 NOW STREAMING


Products

View more

Webinars