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Avon reports third-quarter total revenue up 13%
Oct '08
Avon Products Inc reported that third-quarter 2008 total revenue grew 13% year over year (6% in local currency) to $2.6 billion. Sales of Beauty products rose 15%. Active Representatives increased 5%. Revenues benefitted 7% from pricing and mix, and units sold decreased 1% versus the prior-year quarter.

Operating profit rose 33%, to $297 million from $224 million, and the company's operating margin rose to 11.2% from 9.5% in the year-ago quarter. Net income in the third quarter 2008 was $223 million compared with $139 million in the year-ago quarter. Earnings per share were $.52 versus $.32 per share in the prior-year quarter, or 63% higher. Earnings per share in the 2008 quarter benefitted from one-time tax adjustments of $.09 per share.

Andrea Jung, chairman and CEO, commented, "Avon's third-quarter performance reflects continued momentum of our turnaround plan. Our investments in advertising and the Representative Value Proposition (RVP) are yielding strong results. Again this quarter, growth in our Beauty sales outpaced our overall revenue growth rate. Additionally, our performance is benefitting from the savings and benefits from our restructuring program and strategic initiatives, as those programs remain on track to our longer term expectations."

The company's 15% growth in Beauty sales included increases in all categories: Color was up 19%, Fragrance grew 18%, Skin Care increased 9% and Personal Care rose 13%.

Beauty sales benefitted in part from a year-over-year 11% increase in advertising expense, to $106 million. Advertising supported the launch of new products, such as the Anew Rejuvenate line of skin care, U by Ungaro fragrances and Pro-To-Go lipstick, as well as Representative recruitment advertising in priority markets. Additionally, 2008's third quarter included an incremental $21 million of costs for initiatives to improve the Representative Value Proposition.

Third-quarter 2008 operating profit included costs associated with the company's restructuring program of $14 million ($.02 per share after tax), versus costs of $33 million ($.05 per share after tax) related to the company's restructuring program ($27 million) and Product Line Simplification initiative (PLS) ($6 million) in the prior-year period.

Avon reiterated that it expects to achieve annualized savings of approximately $430 million once all initiatives of its multi-year restructuring program, launched in late 2005, are fully implemented by 2011 - 2012. Those savings are expected to reach $270 million in 2008 and $300 million in 2009. The company anticipates costs to implement all restructuring initiatives from inception to completion to be approximately $530 million.

Additionally, Avon reiterated that beginning in 2010, it expects to achieve in excess of $200 million annual benefits each from its PLS program and Strategic Sourcing Initiative for a total in excess of $400 million from these two programs and over $830 million annually from all initiatives when fully implemented.

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