Avon Products Inc. (AVP) filed Quarterly Report for the period ended 2009-09-30.
Avon Products Inc. is one of the world's leading manufacturers and marketers of beauty and related products which include cosmetics fragrance and toiletries; beauty plus which consists of jewelry and accessories and apparel; and non-core which consists of gift and decorative and home entertainment products. Avon Products Inc. has a market cap of $14.09 billion; its shares were traded at around $33 with a P/E ratio of 20 and P/S ratio of 1.4. The dividend yield of Avon Products Inc. stocks is 2.5%.
Highlight of Business Operations:
During the first nine months of 2009, revenues decreased 9%, impacted by unfavorable foreign exchange and the depressed global economy. Local currency revenue increased 5%, with increases in all segments except North America. Sales from products in the Beauty category decreased 9%, due to unfavorable foreign exchange. On a local currency basis, sales of products in the Beauty category increased 6% due to a 3% increase in units and net per unit. Active Representatives increased 9%. The unfavorable impact of foreign exchange lowered operating margin by an estimated 3 points (approximately 2 points from foreign-exchange transactions and approximately 1 point from foreign-exchange translation), year over year. See the “Segment Review” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information related to changes in revenue by segment.
On a category basis, the decrease in revenue for the three months ended September 30, 2009, was driven by a decrease of 3% in both Beauty sales and Fashion sales, as well as a decrease of 5% in Home sales. Within the Beauty category, skincare declined 8%, personal care declined 4%, fragrance declined 4% and color cosmetics increased 4%. Local currency sales of our product categories increased 7%, with the Beauty category increasing 8%. Within the Beauty category, local currency sales of skincare increased 1%, personal care increased 7%, fragrance increased 9% and color cosmetics increased 17%. Local currency sales of Fashion increased 4% and Home increased 3%.
On a category basis, the decrease in revenue for the nine months ended September 30, 2009 was primarily driven by a decrease of 9% in Beauty sales, with decreases in all sub-categories of Beauty. Within the Beauty category, skincare declined 12%, personal care declined 8%, fragrance declined 8% and color cosmetics declined 5%. Fashion sales decreased 10% and Home sales decreased 8%. Local currency sales of our product categories increased 5%, with the Beauty category increasing 6%. Within the Beauty category, local currency sales of skincare decreased 1%, personal care increased 7%, fragrance increased 9% and color cosmetics increased 11%. Local currency sales of Fashion were flat and Home increased 3%.
Interest expense for the three- and nine-month periods ended September 30, 2009, increased by 6% and 3%, respectively, due to increased borrowings, partially offset by lower interest rates. At September 30, 2009, we held interest-rate swap agreements that effectively converted approximately 82% of our outstanding long-term, fixed-rate borrowings to a variable interest rate based on LIBOR.
The effective tax rate for the three and nine months ended September 30, 2009, was 32.0% and 33.2%, respectively, compared to rates of 19.5% and 28.2%, for the same periods of 2008. The effective tax rate for the nine months ended September 30, 2009, includes the establishment of a valuation allowance against certain deferred tax assets as a result of restructuring activities and a higher tax cost associated with the repatriation of anticipated current year earnings, partially offset by a reduction in a foreign tax liability as a result of a planning strategy. The effective tax rate for the three- and nine-month periods of 2008 include net benefits of 13.6 points and 4.2 points, respectively, resulting from an audit settlement, which was partially offset by the establishment of a valuation allowance against deferred tax assets relating to loss carryforwards.
rates. Local currency revenue for the nine months ended September 30, 2009, benefited from growth in all markets, particularly from increases of 19% in Brazil and 12% in Mexico. Revenue in Venezuela for the three- and nine-month periods of 2009 grew 24% and 13%, respectively, in both local and U.S. dollars.
AVP is in the portfolios of Richard Pzena of Pzena Investment Management LLC, David Williams of Columbia Value and Restructuring Fund, Dodge & Cox, PRIMECAP Management, Chris Davis of Davis Selected Advisers.
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