Avon profit, 2008 sales outlook send shares higher
By Aarthi Sivaraman
NEW YORK (Reuters) - Avon Products Inc, the world's biggest direct seller of cosmetics, posted better-than-expected quarterly profit on Tuesday and its 2008 sales outlook cheered investors, sending its shares up more than 5 percent.
The outlook -- which called for mid-single-digit sales growth in 2008 despite economic worries in the United States -- was based on Avon's turnaround initiatives to sustain overall growth, and restoring strong sales levels, Chief Executive Andrea Jung said in a release.
"We are ... confident that in 2008 -- even in the face of macroeconomic pressures in North America -- we can sustain mid-single-digit topline growth, consistent with our long-term objective," Jung said.
New York-based Avon <AVP.N> is in the middle of a multiyear plan to revive its profits, which includes weeding out less profitable goods, overhauling global purchasing and cutting jobs.
Avon said in January that it expects to spend more on its effort, but annual savings will also be higher once the plan is completely in place by 2011 to 2012.
It expects total restructuring costs will be $30 million more than planned, at $530 million.
Once done, Avon expects annualized savings of $430 million, up $130 million from its previous estimate, from restructuring. Of those savings, $300 million is expected in 2009. It also expects annual savings of more than $200 million each from shedding unprofitable products and its move toward global purchasing.
In the quarter that ended December 31, net profit came to $129 million, or 30 cents a share, compared with $184 million, or 41 cents a year ago.
But excluding costs tied to restructuring, getting rid of
unsuccessful products and its global sourcing initiative, Avon earned 64 cents a share -- 2 cents above analysts' expectations, according to Reuters Estimates.
The company spent $205 million in the quarter on restructuring and product simplification initiatives.
The company has said a net 2,400 jobs would be cut by the time it is done with its restructuring.
Quarterly sales rose 17 percent to $3.1 billion, led by increases in China, Europe, Middle East, Africa and Latin America.
Sales in its North American market rose 2 percent, as it took steps to offset the impact of a slowing economy and higher fuel costs on its sales representatives.
Avon shares were up 5.6 percent at $38.01 in early trading on the New York Stock Exchange.
(Reporting by Aarthi Sivaraman, editing by Maureen Bavdek and Dave Zimmerman)