Avon Products 2nd-quarter profit drops
NEW YORK — Avon Products Inc. said Thursday its second-quarter profit fell 65 percent as foreign currency and hefty restructuring charges hurt the cosmetic company’s bottom line, while the global recession dampened demand for beauty products and fragrances.
But adjusted results beat Wall Street expectations, and shares jumped $2.51, or 8.4 percent, to $32.25.
Quarterly profit slid to $82.9 million, or 19 cents per share, from $235.6 million, or 55 cents per share, in the second quarter last year.
Excluding a restructuring charge of 19 cents per share, Avon recorded profit of 38 cents per share. That beat analysts’ prediction for income of 34 cents per share, according to a poll by Thomson Reuters. Analyst estimates typically exclude one-time items.
Revenue fell 10 percent to $2.47 billion from $2.74 billion. In local currencies, however, sales rose 5 percent, with growth across all product lines: fragrance, color cosmetics, personal care products and skin care products.
Analysts expected $2.43 billion in revenue.
On a conference call with analysts, Chief Financial Officer Chuck Cramb said foreign exchange rates, which aren’t in the same currency as sales, dampened operating margin by 370 basis points, compared to the year-ago quarter.
Amid particularly weak economies in Central and Eastern Europe, Avon raised some prices to account for swings in currency. Cramb said Avon “took some high inflationary pricing” in the Ukraine, for example.
Avon was also hit by a stronger dollar, which means overseas sales convert back into fewer dollars from foreign currencies.
Avon has been attempting to boost the number of independent salespeople for its products by investing in recruitment ads at its highest level ever. Their ranks grew 11 percent in the quarter.
Stifel Nicolaus analyst Mark S. Astrachan said Avon’s sales recruitment amid high unemployment nationwide is helping sales. Astrachan rates the stock “Buy.”
Meanwhile, a slowdown in discretionary spending has also crimped demand for Avon’s cosmetics and fragrances, so Avon is offering more products at lower prices. About 70 percent of Avon’s products are now priced under $5.
Earlier this month, New York-based Avon said it will cut about 1,200 jobs, or about 2.8 percent of its global staff, by 2013 as part of a turnaround effort designed to save $200 million by 2012 to 2013. The job cuts exclude sales representatives.
Avon is also watching other costs and cut travel expenses by 35 percent during the quarter.
Avon sells its products mostly via catalog and door-to-door sales representatives.
AP Business Writer Mae Anderson contributed to this report.
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