UPDATE 2-Avon expects profit from N. America in 2015

Thu Jul 31, 2014 12:30pm EDT

* Expects improved results in second half 2014

* Q2 revenue falls 13 pct, but Brazil improves (Adds details from conference call, analyst comment, updates shares)

By Devika Krishna Kumar

July 31 (Reuters) - Avon Products Inc, a direct seller of cosmetics, said it expects its North American business to turn profitable in 2015 as it cuts costs and introduces more incentives for its sales representatives.

The company's shares rose as much as 8 percent in early trading on Thursday, making the stock one of the top percentage gainers on the S&P 500 index.

Avon, which reported its seventh straight quarter of operating loss in North America, said it hired a "chief representative officer" for the region and would upgrade its website in September in a bid to retain its representatives.

The new website will allow representatives, called "Avon Ladies", to reach more shoppers by increasing their online presence.

The company has had troubles bringing in new representatives and holding on to its existing ones in North America, which contributes about 14 percent to its total revenue.

The cosmetics maker said in June it would cut about 600 jobs, largely in its North America unit, and said it expected restructuring efforts to save about $50-$55 million a year.

Avon has been trying to stem a decline in sales and profit since Chief Executive Sheri McCoy took control in 2012.

The company said it expects to report better results in the second half of 2014 as it manages its representatives better and introduces market-specific products in Russia and Mexico.

"With less negative FX impact anticipated in 2H14 we continue to anticipate modest year-over-year margin expansion resulting from announced cost savings and improved top-line results," Stifel Nicolaus analysts said.

SECOND-QUARTER MISS

While Avon's second-quarter profit and sales fell short of Wall Street's expectation, sales rose in its largest market, Brazil.

"Overall, we believe the result is better than feared, particularly given concerns about World Cup disruptions in Brazil, the company's largest and most important growth market, and geopolitical unrest in Eastern Europe and Russia," Stifel analysts wrote in a research note.

Avon's rivals have been piling on the pressure by lowering prices in Russia, Brazil and the United States.

Avon's revenue from Brazil rose 3 percent in constant currency in the second quarter ended June 30.

Net income attributable to Avon fell to $19 million, or 4 cents per share, in the second quarter ended June 30, from $31.9 million, or 7 cents per share, a year earlier.

Excluding items, the company earned 20 cents per share from continuing operations.

Revenue fell 13 percent to $2.19 billion. Excluding the impact of a strengthening U.S. dollar and monetary policies in overseas markets, revenue fell only 3 percent.

Analysts on average expected earnings of 21 cents per share on revenue of $2.23 billion, according to Thomson Reuters I/B/E/S.

Avon's shares were up 4 percent at $13.50 in afternoon trading on the New York Stock Exchange. They earlier touched a high of $14.06. (Reporting by Devika Krishna Kumar in Bangalore; Editing by Savio D'Souza and Don Sebastian)

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