Restructuring saves the day for Avon

By Simon Pitman

- Last updated on GMT

Related tags: Currency, Revenue, Latin america, North america

Although sales slipped 9 percent in its fourth quarter aggressive restructuring has helped to boost profits by 80 percent.

The company reported that sales fell to $2.8bn, compared to $3bn in the corresponding quarter ending 31 December, 2007. For the full financial year revenues grew 8 percent to a record $10.7bn.

Avon said the lower sales were mainly attributable to a shift in many foreign currency exchange rates during the quarter, offsetting local currency growth rates of 2 percent as sales in developing markets continued to drive the results.

Sales in Latin America were down 5 per cent during the quarter, offsetting local currency growth of 11 percent, whereas sales were down 11 per cent in North America – 9 percent in local currency.

Sales in CEE countries disappoint

In Central & Eastern Europe, the fourth quarter sales were heavily impacted by currency exchange, down by 14 percent, and down 3 percent in local currencies.

Sales in Western Europe, Middle East & Africa were 16 percent lower, offset by a 2 percent revenue growth, whereas in the Asia-Pacific region, revenues for the quarter fell by 6 percent against a flat performance for local currencies.

Net income increased to $232.4m, up from $128.9m in the same period last year, which the company said was mainly due to significantly lower costs derived from its restructuring program.

Net income rockets

For the full year net income was up 65 percent, from $530.7m in 2007 to $875.3m for the full financial year 2008.

As a result of this fourth quarter savings operating profit grew by 66 percent to $372m, while for the full year it was up 53 percent to $1.3bn.

Although the company managed to turn a profit during the fourth quarter, the results were still below analysts' expectations as the weakness of foreign currencies and the consumer slump bit harder than expected.

Depressed economy hurts sales

“After nine months of strong sales performance, the significant negative impact of foreign exchange and the depressed economy hurt our fourth-quarter revenue performance,”​ said Avon CEO Andrea Jung.

“It is prudent to assume these pressures will continue for the foreseeable future, and we therefore anticipate that 2009 will be a challenging year.”

The direct sales company said that active representation – the number of people out selling its products – rose 4 percent for the fourth quarter and 7 percent for the year as a whole.

Advertising spend falls

Conversely, in line with the company’s cost cutting measures, advertising decreased in the fourth quarter to $100m, whereas for 2008 as a whole it fell by 6 percent to $391m.

Relating to costs, the company said that it expects to achieve annual savings of approximately $430m once all the initiatives in the restructuring program have been fully initiated.

This compares favorably against total costs incurred of $530m since the program was initiated in 2005.

Related topics: Business & Financial

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