* 1st-qtr adj profit 26 cents/share vs est 14 cents/shr
* Brazil sales rise 11 pct in constant dollars
* Avon says likely to record a loss to settle govt probe
* Shares climb 3 percent
By Phil Wahba
April 30 Avon Products Inc posted higher
earnings on cost cuts and increased sales in Brazil and Russia,
appearing to make progress in the turnaround plan its chief
executive put in place last year.
The company - known for its door-to-door sales force - beat
Wall Street forecasts and its shares rose 3 percent to $22.88 on
Tuesday, their highest level since April 2012, when smaller
rival Coty was trying to buy it.
Avon, which in 2012 reported a net loss, lower revenue and
shrinking profit margins, is in the process of cutting $400
million a year by reducing jobs and advertising costs and
exiting markets where it has struggled like South Korea, Ireland
For the second quarter in a row, the size of its sales force
expanded, helped primarily by Brazil - its top market.
"We are making progress toward our turnaround in some
important areas," Chief Executive Sheri McCoy told investors on
a conference call.
McCoy has presented her turnaround plan in increments.
Avon is trying to win back sales representatives. It also
has upgraded computer systems in Brazil to make it easier for
reps to fill orders. In Russia, it has been offering more
products specifically for that market.
Wall Street analysts lauded the speed of improvements in the
adjusted operating profit margin, which was 8.3 percent - 4.5
points better than a year ago, and above the 5 percent that
Stifel Nicolaus projected.
Last year, McCoy set a goal of a margin in the low teens.
In 2012, it fell to 2.9 percent of sales from 9.9 percent two
Avon was also helped by lower advertising expenses, and
lower freight costs. Overall, revenue in the quarter fell 3.5
percent to $2.48 billion, but was flat when stripping away the
impact of currency fluctuations.
In Brazil, which accounts for one-fifth of sales, revenue
excluding the impact of currency rose 11 percent as more sales
reps joined. It was the third quarter of growth in that country.
Revenue in Russia rose 4 percent in constant dollars.
Avon reported a net loss of $13.7 million, or 3 cents per
share, compared with net income of $26.5 million, or 6 cents per
share a year earlier.
Excluding items such as a charge related to the recent
currency devaluation in Venezuela, a big market for Avon, the
company reported adjusted net income of $112 million, or 26
cents per share, helped by cost cuts.
That was well above the 14 cents per share Wall Street
analysts were projecting, according to Thomson Reuters I/B/E/S.
Avon, which last year began talks with the U.S. Department
of Justice and the Securities and Exchange Commission to settle
probes into whether company officials paid bribes overseas last
decade, said in a regulatory filing that based on its latest
discussions with those agencies, it is "probable" it will incur
a loss that could be material.
The company did not disclose additional information.
NOT OUT OF THE WOODS
Avon's growth in Latin America and Eastern Europe contrasted
with a poor showing in North America and in China, where sales
continued to slide, falling 15 percent and 31 percent,
"They still have an uphill battle in key markets,"
Morningstar analyst Erin Lash said.
McCoy told Wall Street that it will take "some quarters" for
things to improve in China, where Avon has fallen well behind
rivals like Amway in recent years.
Avon said that globally, it sold 3 percent fewer items in
the quarter, with the decline most pronounced in skincare, a
crucial component of beauty products in Asia.
In North America, where Avon has suffered big sales declines
and a shrinking salesforce for years, McCoy is working to
improve product selection and compensation, and restore Avon's
reputation, but she warned fixing the U.S. business will take
Shares have rebounded 68 percent since a 52-week low in
November, largely because McCoy has delivered on her promise to
stabilize the business. But at $23, they remain below the $24.75
per share Coty offered in a bid that was ultimately rejected.
McCoy, keeping to her cautious management style, again
warned investors on the conference call to expect occasional
setbacks in Avon's turnaround and recognized the company still
faces daunting challenges.