Eastern Europe leads the way for Avon's first quarter

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Avon has announced a significant increase in its first quarterly
sales, leading to an even bigger jump in net profits. Although the
UK market registered a slump in sales, it was the central and
eastern Europe markets where extraordinary growth rates continue to
drive the bottom line, reports Simon Pitman.

The company said that its global revenues grew by 7 per cent to $1.88 billion in the first three months of 2005. The gain was seen as particularly significant in light of the 20 per cent gain in sales revenue in the corresponding quarter for 2004, although it was below analysts' expectations, who had forecast sales of $1.90 billion for the quarter.

Despite sales being below expectations, net profits showed a sharp increase, up from $148.1 million in the first three months of 2004 to $172 million for the three months ending 31 March 2005.

The gain in net income came from an improved operating profit, which increased 14 per cent over the same period last year.

Speaking about the performance, Avon​ CEO Andrea Jung said, "Looking ahead, we're projecting that local currency revenue will accelerate, as increased innovation in our second-half product pipeline drives stronger Beauty sales. Continuing strong results in our international regions are offsetting US performance during this period of repositioning, with our emerging markets once again expected to deliver another full year of stand-out revenue growth."

Avon's results are published at the same time as other major cosmetic and personal care players such as Palmolive-Colgate and P&G. Although none are exactly falling on hard times at the moment, challenges still exist.

All are being hit by rising commodity prices and competitive pricing strategies. However, looking at the individual markets, the story becomes more varied. For P&G it is the western European market that is proving difficult to sustain higher growth levels, whereas the performance in the US market has proved to be much stronger, despite challenging retail conditions.

For Colgate-Palmolive the story has proved to be quite the reverse, with the European market continuing to show signs of strong growth, helped along by positive currency gains and a strong Eastern European market. On the other hand sales growth in the US market has been almost half of that in the US.

It has proved to be a similar story for Avon, who have been struggling against the challenges currently represented by the North American market. The company reported that sales revenue was down by 6 per cent in the US, whereas in the European market sales revenue was up a significant 17 per cent - counterbalancing the poor performance at home.

Again, the strong performance in Europe was driven by the Central and Eastern European markets, with sales revenues increasing by 27 per cent for the region during the quarter.

Looking ahead to the next quarter Avon said that it expects revenue growth to accelerate in the second quarter of 2005. Revenues were expected to be driven by a continued strong performance in Eastern Europe, as well as the first benefits of direct sales in China, which began earlier this year.

The North American market, on the other hand, will continue to be the thorn in Avon's side, with second quarter performance expected to be in line with that of the first quarter. Repositioning in the US market is ongoing, the benefits of which are expected to be felt by 2006.

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