Avon's strong results let down by slack US performance

Related tags Cent United states

Avon has reported strong sales growth and profits for its third
quarter financial results, but despite this weakened sales for the
US market is making some investors nervous. Simon Pitman

The New York-based company recorded a 33 per cent increase in net income compared to the corresponding quarter in 2003, jumping to $176.9 million from $133.1 million a year earlier. The result was bought about by particularly strong sales in both Europe and Asia which helped push overall sales up by 11 per cent to $1.81 billion, compared to $1.62 billion for the corresponding quarter in 2003.

But investors reacted to sluggish US sales results and share prices fell by 8.5 per cent last Friday, the day the results were announced. Analysts said that investors were worried by the US results because no progress had been made despite significant investments to buck the trend.

The company said that poor sales of colour cosmetics and flat beauty sales had meant that it had only managed to achieve a 1 per cent growth rate for the domestic market.

Avon​ CEO Andrea Jung said in a conference call that double digit profit growth in the European, Latin American and Asian markets had provided a major boost for the company's operating profits. She added that the results for the US market had already been anticipated after the company announced its second quarter results back in September.

Breaking down the third quarter, Latin America posted a profit growth of 18 per cent on the back of an 8 per cent rise in sales. However the most outstanding results came from both the European and Asian markets where operating income for both regions increased by 60 per cent. In Europe sales increased by 33 per cent, driven by strong results in Eastern Europe, while in Asia sales were up 14 per cent.

For the full year the company said that it is expecting to maintain double digit sales growth largely in line with the third quarter results. This growth is expected to be sustained by a continued strong performance in Beauty sales. The company added that this will be driven by a campaign which will double advertising expenditure in Russia, China, Brazil and the UK to maintain sales momemtum. Further to this a continued decline is expected in the domestic market, with sales predicted to slump 3 per cent in the fourth quarter - a result which is again expected to be offset by stronger international markets.

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