Tags: US | Earns | Avon

Devaluation of Venezuela's Currency Hurts Avon's Profit

Friday, 30 Apr 2010 10:35 AM

Avon Products Inc. said Friday that first-quarter profits fell 64 percent as the company was hit hard by a devaluation of Venezuela's currency.

Stripping out one-time costs like the devaluation of the bolivar and restructuring, however, Avon beat Wall Street expectations and reported that revenues climbed sharply.

The seller of beauty products like Skin-So-Soft, Mark and its namesake brand earned $42.5 million, or 10 cents per share, for the period ended March 31. In the prior-year period, profit was $117.3 million, or 27 cents per share.

Excluding restructuring and currency charges, profit was $144 million, or 33 cents per share. That edged out the estimates of analysts polled by Thomson Reuters by a penny.

Revenue jumped 15 percent to $2.49 billion, and there are signs that consumers in some parts of the world are starting to spend money again. Latin America and Europe make up about 70 percent of Avon's sales.

Sales were particularly strong in Latin America, up 22 percent. Revenue for Central and Eastern Europe climbed 28 percent, while sales for Western Europe, the Middle East and Africa rose 23 percent. Revenue increased 10 percent for the Asia Pacific region.

In North America, however, revenue dipped 2 percent. China also didn't fare well, with revenue down 31 percent on declines in direct selling and its beauty boutiques.

Beauty sales climbed 14 percent with increased revenue in its fragrance, color cosmetics, personal care and skin care divisions.

On Thursday competitor Revlon Inc. reported its first-quarter profit fell on higher expenses. Like Avon, the company behind brands like Almay and Ultima II posted a drop in domestic sales and revenue growth overseas.

Avon is in the midst of a restructuring that includes job cuts and trimming overhead. Costs related to its restructuring were $5 million, or a penny per share, during the quarter.

The company, based in New York, has focused on recruiting independent sellers, as well as marketing less-expensive products, some items under $5.

Avon has been able to attract more independent sales people with many other companies laying off workers.

Avon boosted its sales force by 6 percent in the quarter and poured more money into its advertising efforts. It spent 23 percent more during the period than it did a year ago.

The beauty seller has faced some unflattering headlines of late, and put four executives on administrative leave earlier this month as part of an investigation into bribery allegations that started in China. Avon began investigating its China operations in 2008 after it received an allegation that some travel, entertainment and other expenses may have been improper, according to filings with the Securities and Exchange Commission.

Since then, the investigation has spread to other, undisclosed countries, Avon has said.

Shares slid 67 cents in premarket trading to $32.

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