Avon reports positive profits supported by healthy sales
profits supported by successful third quarter sales,
illustrating how the company is reaping the
benefits of its restructuring initiatives.
The direct selling company, which has been implementing an impressive restructuring program since 2005, reported third quarter revenues of $2.3b, up 14 percent (8 percent in local currency) from last year's figure. Revenue increases were seen in beauty products, where sales increased by 16 percent. Fragrances lead the way with a 23 percent increase on last year's figures, followed by an 18 and 5 percent increase in color cosmetic and skin care sales respectively. Avon chairman and CEO Andrea Jung commented that "the 14 percent revenue increase reflects the benefits of significantly increased investments we've made in advertising and the Representative Value Proposition over the last two years". The quarter's advertising expenditure of $96m was a 44 percent increase on last year's figure, whilst Jung confirmed that the company remains on track for its targeted ad spend of $375m for 2007. The company recorded an impressive 68 percent leap in net income on last year's figure of $86m, to reach $139m. Nevertheless, the figure has yet to reach 2005 levels in the corresponding quarter when net income stood at $163.8m. According to the company, third quarter operating profit rose 33 percent from 2006's level of $168m, to reach $224m in 2007. Avon's operating margin for the quarter stood at 9.5 percent, an increase of 8.1 percent in the prior-year quarter, and the company expects 2008's figures to be approaching the record-breaking performance in 2005. "This more stabilized level of investment, together with the projected benefits from our major initiatives of restructuring, Product Line Simplification and Strategic Sourcing, and decreased costs to implement these programs, support our expectation of an operating margin in 2008 that approaches 2005's levels" Jung said. Sales revenues increased in almost all regions, as Latin America led the way with an increase of 21 percent on last year's third quarter (13 percent in local currency), with Brazil cited as the major contributor to growth in the region. According to Avon, continued strength in Turkey - with a rise in revenue of over 30 percent - is heading growth in Western Europe, Middle East and Africa. In contrast revenues in the Asia-Pacific region grew by only 3 percent, which represented a fall of 2 percent in local currency. This figure was mainly impacted by Japanese sales declining 9 percent due to lower mailing-program sales and flat direct sales. The results appeared to be well received by the industry and investors, as share prices rose as much as 6.1 percent the day the results were released, according to Reuters.