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Avon Faces a Rough Q1 2012

Posted: May 1, 2012

Avon Products, Inc., which recently has been the subject of acquisition discussions, has reported its first-quarter 2012 results, and of the Q1 2012 results, Kimberly Ross, Avon executive vice president and CFO, said, "While our first-quarter operating performance remained challenged, we are making progress toward addressing some of our operational and cost-cutting opportunities. With Sheri McCoy now on board, we are confident that her broad leadership experience and skills in managing large, complex, global organizations will help drive Avon's future success. We look forward to communicating further with investors about our future growth strategy at the appropriate time."

The company’s total revenue of $2.6 billion decreased 2% like-for-like, up 1% in constant dollars. Total units declined by 1% and price/mix increased 2% during the quarter. Active representatives were down 2%. On a category basis, beauty sales declined 1%, up 2% in constant dollars. On a reported basis, color was flat, while fragrance and skin care declined 1%, and personal care was down 2%. Constant-dollar beauty was driven by growth in all categories; color was up 4%, fragrance increased 3%, skin care grew 2%, and personal care was up 1%.

In Latin America, Avon reported total revenue of $1,138.8 million, a 1% like-for-like increase and a 5% increase in constant dollars, and first-quarter constant-dollar revenue in the region was driven by growth in both average order and active representatives. Brazil was down 4%, or up 2% in constant dollars, driven by growth in active representatives.  Brazil's sales of beauty products were flat with prior year, yet they increased 6% in constant dollars. This was partially offset by lower average order, due to uncompetitive pricing in the fashion and home category, as well as continued lower-than-normal service levels. Brazil sales were also negatively impacted by increased competition. Strong momentum did continue in Mexico, which was up 2%, or up 10% in constant dollars, driven by higher average order as well as an increase in active representatives, and Venezuela grew 26% in both reported and constant dollars, as average order benefited from inflationary price increases.

For North America, total revenue for the quarter was $490.3 million, a like-for-like drop of 4% and a constant dollar drop of 4%. Avon's core U.S. business, which excludes Silpada, was down 2%, as average order growth, which benefited from product portfolio enhancements of Smart Value and giftables, was offset by a decline in active representatives. Silpada sales declined 17% due to declines in both active representatives and average order.

The Central and Eastern Europe region reported total revenue of $394.6 million for the quarter, a like-for-like decrease of 4%. First-quarter constant-dollar revenue was flat, as higher order averages were offset by a decline in active representatives, and Russia was down 1%, or up 1% in constant dollars, due to an increase in active representatives.