Avon Profit, Sales Miss Estimates, Shares Tumble

Thursday, 28 Oct 2010 10:47 AM

 

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Avon Products Inc. posted a lower-than-expected quarterly profit as spending on advertising failed to lift sales as high as the company hoped, sending its shares down more than 11 percent.

The company, which has been rumored to be an acquisition target of France's L'Oreal SA, also saw operating margin fall to 10.3 percent in the quarter from 11.4 percent a year earlier, excluding one-time items.

Margins were pressured by the increased advertising and by the costs of the company's investigation into bribery allegations in its China business.

Avon shares fell 11.6 percent to $29.05 in morning trading on the New York Stock Exchange.

Avon saw revenue plummet 30 percent in China as the company continued its transition there to its traditional direct-selling model.

China's operating loss was $3 million for the quarter, compared with a $3 million profit in the third quarter last year.

The company, a direct seller of women's beauty products through a cadre of representatives, spent heavily on advertising and other investments in the quarter, but revenue was less than the company expected.

"The third quarter was always planned to be a heavy investment quarter, although the lower-than-expected revenues added further pressure to operating margin," Chief Executive Officer Andrea Jung said in a statement.

Still, revenue was up 4 percent at $2.66 billion. Analysts on average forecast $2.69 billion.

Revenue growth was stronger in Latin America and Africa, while North America and parts of Europe lagged or declined.

Cosmetics maker Revlon Inc. also cited weak sales in the United States as it posted third-quarter profit that fell by 46 percent.

Avon's net income in the third quarter rose to $166.7 million, or 38 cents a share from $156.2 million, or 36 cents a share, a year earlier.

Excluding one-time items, earnings were 41 cents a share, compared with the analysts' average estimate of 47 cents, according to Thomson Reuters I/B/E/S.

L'Oreal, the world's biggest cosmetics maker, beat forecasts last week as its luxury brands Yves Saint Laurent and Lancome rebounded.

© 2014 Thomson/Reuters. All rights reserved.

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