UPDATE: Avon To Continue Building Brand, Sales Rep Levels
30 10월 2009 - 3:06AM
Dow Jones News
Avon Products Inc.'s (AVP) work to build its brand, innovations
and number of active sales representatives in recent years has
worked, Chief Executive Andrea Jung said Thursday, and it's a
strategy the company plans to continue.
Jung made the comments at an investor presentation that followed
the beauty-product company's release of its third-quarter earnings.
In the quarter, Avon's earnings excluding items beat analysts'
estimates as the company made improvements in unit sales and found
supply-chain savings.
But Avon shares declined as much as 8.7% to $30.12 Thursday
morning as investors focused on the company's unit volume declines
in North America and China. Later in the day shares were down just
1.7%, as the broader market rose and as investors appeared to like
what they heard during the company's more than four-hour
presentation.
Jung said Avon is laying the roadmap for sustainable
market-share expansion and earnings growth in 2010 and beyond.
Jung, who said she will be staying with the company for the
foreseeable future, noted that in recent years Avon has made a
large investment in advertising and the company has also elevated
its pricing power.
In response to the economic downturn, Jung said Avon has been
focusing on sales of its products priced at under $5.
Moving forward, Avon said that Latin America is its top
beauty-market opportunity. Among the reasons for this strategy:
People in Latin America spend a relatively high proportion of their
discretionary income on beauty products, Avon said.
Meanwhile, one of the main concerns for the company is its
business in North America, where the company expects macroeconomic
challenges to continue for the next 18 months. Avon's North America
unit volume declined 5% in the third quarter.
The challenge in the region is the company's falling unit
volumes of nonbeauty products, which include jewelry and home
decorations. Geralyn Breig, president of Avon's North America
division, said average Avon representatives get 36% of their
earnings from this category.
To address the problems with nonbeauty volumes, Breig said the
company will be de-emphasizing these products via a strategy that
includes investing in the company's high-margin skin-care
category.
Meanwhile, a concern for investors was the company's performance
in China, where units sold fell 19% year over year--in sharp
contrast to the 32% year-over-year gain in the prior quarter.
Another issue analysts are focusing on is the company's $22
million decline in advertising spending year over year. Sanford
Bernstein & Co. analyst Ali Dibadj said that while Avon
believes it has found a balanced level of ad spending, he thinks
that amount needs to increase, particularly as global competition
for the company is growing.
Jefferies analyst Douglas Lane said Avon's underlying momentum
indicators remain strong, as unit volumes and sales on a
local-currency basis both accelerated sequentially. Most
importantly for Lane, Avon increased the number of its active
representatives by 10% year over year.
Looking to the fourth quarter, Avon's revenue could benefit from
easing pressure tied to foreign-currency translation, company Chief
Financial Officer Charles "Chuck" Cramb said.
"Our top line is still impacted by foreign exchange, but that
pressure is starting to lift," Cramb said.
While foreign exchange created a drag of 11 percentage points on
Avon's third-quarter revenue, resulting in a 4% revenue decline, it
could provide a mid-single-digit percentage point lift to sales
between the third and fourth quarters, he said.
Cramb said lower spending so far this year means Avon's capital
spending is likely to range from $300 million to $325 million,
compared with an earlier forecast of $325 million to $335 million.
But Avon remains on track to deliver $1.08 billion in cost savings
in the 2012-2013 timeframe, he said.
-By Jennifer Hoyt Cummings and Mary Ellen Lloyd, Dow Jones
Newswires; 212-416-2474; jennifer.cummings@dowjones.com