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Apr 30, 2013
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Avon profit beats on cost cuts and sales jump in Brazil and Russia

By
Reuters
Published
Apr 30, 2013

Avon Products Inc on Tuesday reported a better-than-expected first-quarter profit in the latest sign the beauty products company's business continues to improve, helped by higher sales in key markets Brazil and Russia and cost cuts.

Avon's shares rose 6.1 percent to $23.60 in premarket trading.

Overall, revenue in the quarter fell 3.5 percent to $2.48 billion, but was flat when stripping away the impact of currency fluctuations.

Avon's growth in Latin America and Eastern Europe contrasted with a poor showing in North America and in China, where sales again slid, falling 15 percent and 31 percent respectively.

In her first year at the helm, Chief Executive Sheri McCoy has begun taking steps to stanch a drop in the number of sales representatives by improving compensation and to boost sales by offering more products specifically catered to a given market.

"The numbers show her initiatives are gaining traction," Morningstar analyst Erin Lash said. "But they still have an uphill battle in key markets."

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 was $112 million, or 26 cents per share, helped in large part by cost-cutting efforts.

That was well above the 14 cents per share Wall Street analysts were projecting, according to Thomson Reuters I/B/E/S.

The company is in the process of cutting $400 million in selling, general and administrative costs per year and has cut hundreds of jobs and exited markets like Korea and Vietnam.

Avon said it sold 3 percent fewer items in the quarter that ended March 31, but the number of sales representatives rose 1 percent.

In Brazil, its top market, accounting for one-fifth of sales, revenue excluding the impact of currency rose 11 percent as more sales reps joined up. It was its third quarter of growth there after earlier stumbles. Revenue in Russia also improved, rising 4 percent in constant dollars.

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.

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