Restructuring costs hit Avon second quarter profits

By Simon Pitman

- Last updated on GMT

Related tags United states dollar Us

Avon has announced a 65 percent drop in profits as charges for its tough restructuring program bites into the company’s bottom line.

The company’s quarterly sales were also hit hard by unfavorable currency exchange, as the US dollar continued to be strong against international currencies.

The quarterly profit slipped from $235.6m in the corresponding period last year to reach $82.9m this year.

'Agressive steps' to off-set currency exchange impact

“From an earnings perspective, our results included substantial costs associated with our recently launched 2009 restructuring program,”​ said Andrea Jung, chairman and CEO.

“Also, foreign exchange-exchange continued to significantly pressure profits, as expected. We are taking aggressive steps to help offset the foreign-exchange impact throughout our value chain, the benefits of which should be stronger in the second half of the year.”

Sales revenue for the period was $2.47bn, 10 percent lower than the corresponding period last year, but up 5 percent on a local currency basis as foreign exchange impacted the results by 15 percentage points.

On a reported basis, sales of fragrance and color cosmetics both fell by 9 percent, whereas personal care fell by 10 percent and skin care by 12 percent. On a local currency level all of these figures were positive.

Sales and profits ahead of expectations

The sales and profits figures were both slightly ahead of analysts’ expectations, with a poll by Thomson Reuters revealing analysts’ average expectations for revenue during the quarter of $2.43bn.

Sales, general and administrative costs rose significantly during the quarter on the back of the restructuring program, whereas the company shaved off $21m from its advertising and marketing budget, which fell to $82m – a figure that was partly accounted for by currency exchange.

On a regional basis, Latin American sales were down 3 percent on a year-on-year basis, but up 15 percent at local currency rates, whereas revenue in North Americas declined by 10 per cent, and 8 percent at local currency.

In Central and Eastern Europe revenue was 25 percent lower but up 3 percent on a local currency rate, while the Western Europe, Middle East & Africa region saw sales fall 18 percent but rise by 4 percent at local currency rates.

China market stands up to the world recession

In Asia-Pacific sales were down 8 percent and remained flat on a local basis, while sales in China grew 15 percent and 13 percent at local currency rates.

Analysts believe that Avon will continue to fight against the adverse effects of a strong dollar, but also expects that the company should reap some benefits from its restructuring program by the end of the year.

Earlier this month, the company announced that it was axing 1,200 jobs worldwide by 2013 – approximately 2.8 percent of its global workforce – as part of aims to cut back on its fixed costs.

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