Avon earnings rise 7 pct, short of Wall St. views

AP News
Posted: Oct 28, 2010 1:26 PM
Avon earnings rise 7 pct, short of Wall St. views

Beauty-products seller Avon Products Inc.'s net income rose 7 percent in its third quarter, but earnings missed expectations as the company spent more on advertising and revenue from China sank.

Shares fell nearly 6 percent during midday trading.

Weakness in Brazil and Russia drove down results, CEO Andrea Jung said. She said the company had weaker than expected results in both skin care and color cosmetics categories.

"(There were) technical challenges in Brazil and Russia that tempered sales during the quarter," Jung said. "Despite this we maintained our commitment to strategic investment in our key geographies."

She said average order size in Brazil, usually one of Avon's best performing markets, dropped unexpectedly as the company relaunched cosmetics including lipstick and mascara, and the relaunches did not go as well as expected.

Jung said advertising spending rose 36 percent. Most advertising was for fragrances, but the company also advertised products for hair and acne, new product categories for Avon.

Net income rose to $166.7 million, or 38 cents per share, from $156.2 million, or 36 cents per share, in the same period last year.

Adjusted for Venezuela's currency devaluation and restructuring costs, earnings were 41 cents per share.

That missed analyst expectations, on average, of net income 47 cents per share, according to a Thomson Reuters poll.

Revenue rose 4 percent to $2.66 billion from $2.56 billion last year. Analysts expected revenue of $2.69 billion.

Revenue rose 8 percent in Latin America, but that was more than offset continuing weakness in North American revenue, which fell 2 percent. Revenue from China fell 30 percent, as the company continues to transition away from retail stores to a model that is more similar to the U.S., which focuses on direct selling by independent salespeople.

Avon, based in New York, continues to expect revenue growth in the mid-single digits for the full year.

Last week, a media report said L'Oreal might be interested in acquiring Avon, but Jung said she had no comment on rumors or speculation.

Also on Wednesday, Revlon said Thursday its net income dropped 46 percent as U.S. sales remained weak. Its shares fell nearly 17 percent in midday trading.

Avon shares fell $2.05, or 6.2 percent, to $30.81 during midday trading. The stock has traded between $25 and $36.39 over the past 52 weeks.