Avon announces financial and international strategies, earnings increase

Related tags Avon United states dollar

Avon raises its earnings forecast and announces new cash management
and tax strategies that will see more of the US-headquartered
company's international earnings remain offshore, taking advantage
of overseas sales and profits growth, writes Louise

Avon​, the international direct selling cosmetics company that sells a lipstick every three seconds, has raised its earnings outlook for the second quarter of 2004 and the whole financial year.

For the second quarter, Avon now expects to earn US$0.46 (€0.38) per share, more than a quarter above the same period last year. Earnings for the full financial year are now projected to be US$1.70 (€1.42) per share, up more than a fifth from last year, and US$0.05 (€0.04) higher than earlier expectations.

The new targets reflect a reduction in Avon's effective tax rate, which is expected to fall to 31 per cent from 35 per cent as the company implements its management and tax strategies in 2005.

The strategies are a further extension of the company's business transformation efforts and reflect a decision to permanently invest a larger share of foreign earnings offshore, enabled by a new international holding company structure. Strong sales and profit growth for the company's international operations means Avon stands to benefit considerably from keeping foreign earnings offshore.

In terms of New York-based Avon's international cosmetics businesses, the anticipated single-digit growth in the US is expected to be bolstered by better news from Europe, where second quarter figures are expected to be up more than 20 per cent in dollar terms and nearly as much in local currencies.

Avon expects to perform particularly well in Russia, which is the company's fastest growing market.

In a recently published report entitled Cosmetics and Toiletries in Russia​, market analysts Euromonitor predicted that the Russian cosmetics and toiletries market had "huge potential to grow in the coming 10-15 years".

Referring specifically to direct sales, Euromonitor commented that: "...by the end of the review period direct sales had seized an impressive share of 14.2 per cent of total cosmetics and toiletries sales."

This was attributed to favourable local market conditions and consumers who were described as "...very approachable and also easier to influence than in some other countries."

Latin America, again an Avon stronghold, is expected to post similar growth figures to those of Europe, 20 per cent in dollar terms and high teens in local currency.

Speaking with CosmeticsDesign​ recently, Avon's executive director financial communications Victor Beaudet confirmed the importance of the Latin American market to the company: "In terms of global sales for 2003, Latin America represented 26 per cent of sales and 31 per cent of operating profit. For year-end 2003, sales in Brazil specifically amounted to almost US$490 million (€410 m)."

These sales represented an increase on the previous year's figures, Beaudet said: "Avon's overall sales in Latin America grew six per cent in US dollars and 15 per cent in local currency."

Regarding Avon's future strategy, he said: "Latin America is one of the leading growth areas. Avon has sizeable market shares and expects this growth to continue."

Another fast-growing market is China, where Avon projects sales growth of nearly 50 per cent. The rest of the Asia-Pacific region is forecast to generate double-digit growth, with operating profit expected to grow by a quarter.

For the last financial year Avon, which has nearly four and a half million sales representatives in more than 100 countries, reported nearly US$7 billion (€5.8 bn) in annual revenues, more than three times as much as its closest competitor, Mary Kay.

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