Avon Products Inc. Reports Operating Results (10-Q)
Avon Products Inc has a market cap of $6.69 billion; its shares were traded at around $15.49 with a P/E ratio of 14.5 and P/S ratio of 0.6. The dividend yield of Avon Products Inc stocks is 5.9%. Avon Products Inc had an annual average earning growth of 2.8% over the past 10 years. GuruFocus rated Avon Products Inc the business predictability rank of 3-star.
Highlight of Business Operations:During the first nine months of 2012, revenues declined 6% due to unfavorable foreign exchange. Constant $ revenues were flat. Sales of products in the Beauty category decreased 7% due to unfavorable foreign exchange, and increased 1% on a Constant $ basis. Sales of products in the Fashion category decreased 7%, or 3% on a Constant $ basis. Sales of products in the Home category decreased 5% due to unfavorable foreign exchange, and increased 2% on a Constant $ basis. Active Representatives decreased 2% and average order increased 2%. See the “Segment Review” section of this Management s Discussion and Analysis of Financial Condition and Results of Operations for additional information related to changes in revenue by segment.
In an effort to improve operating performance, we identified certain actions in 2012, not associated with the 2005 and 2009 Restructuring Programs, that we believe will enhance our operating model, reduce costs, and improve efficiencies. As a result of the analysis and the actions taken, we recorded total costs to implement of $63.2 for the nine months ended September 30, 2012. In connection with these actions, effective April 1, 2012, Central & Eastern Europe and Western Europe, Middle East & Africa are being managed as a single operating segment. Accordingly, Europe, Middle East & Africa amounts include the results of Central and Eastern Europe and Western Europe, Middle East & Africa for all periods presented. In connection with these actions, we expect to realize operating profit benefits of approximately $40 annually and cash flow benefits of approximately $35 after taxes annually beginning in 2013, which will likely be a mitigating factor against inflationary cost pressures.
We account for Venezuela as a highly inflationary economy. At September 30, 2012, we had a net asset position of $194.0 associated with our operations in Venezuela, which included cash balances of approximately $225 of which approximately $223 was denominated in Bolívares remeasured at the September 30, 2012 official exchange rate and approximately $2 was denominated in U.S. dollars. Of the $194 net asset position, approximately $222 was associated with Bolívar-denominated monetary net assets and deferred income taxes. Additionally, during the first nine months of 2012 Avon Venezuela s revenue and operating profit represented approximately 5% of Avon s consolidated revenue, 11% of Avon s consolidated operating profit, and 8% of Avon's Non-GAAP operating profit.
Avon s consolidated operating profit during the first twelve months following the devaluation, in this example, would likely be negatively impacted by approximately 13%, assuming no offsetting operational improvements. The larger negative impact on operating profit during the first twelve months as compared to the prospective impact is caused by costs of nonmonetary assets being carried at historic dollar cost in accordance with the requirement to account for Venezuela as a highly inflationary economy while revenue would be remeasured at the further devalued rate.
For the three and nine months ended September 30, 2012, costs associated with acquiring goods that required settlement in U.S. dollars through the SITME market in Venezuela included within operating profit were approximately $4 and $14, respectively. The amounts reported for costs associated with acquiring goods that required settlement in U.S. dollars through the SITME market in Venezuela included within operating profit for the three and nine months ended September 30, 2011, were approximately $4 and $8. Additionally, if the exchange rate in the SITME market is further devalued, or an alternative source of exchange becomes available at an unfavorable rate beyond the rate of 5.7 Bolívares to the U.S. dollar, our results could be negatively impacted. If the SITME rate or an alternative source of exchange becomes 8.6 Bolívares to the U.S. dollar, we would likely incur an immediate charge of approximately $57, as well as higher ongoing costs.
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