WRAPUP 1-Avon sales miss on weak North America, Arden beats

Published: 29 Oct 2009 19:24:27 PST

* Avon Q3 adj EPS $0.42 tops Street view of $0.40

* Avon revenue $2.55 bln; Analysts expected $2.57 bln

* North American revenue down 8 pct; below some estimates

* Arden sales $265.2 mln tops Street view for $262.9 mln

* Avon shares fall as much as 8.7 pct, Arden up 3.3 pct

NEW YORK, Oct 29 - Cosmetic maker Avon Products Inc <AVP.N> warned investors that demand remains weak in North America while Elizabeth Arden Inc <RDEN.O> benefited from consumers picking up perfumes at duty-free shops.

Avon, the world's largest direct seller of cosmetics, reported third-quarter revenue that fell short of analysts' estimates, hurt by worse-than-expected revenue in North America, and its shares fell as much as 8.7 percent.

Elizabeth Arden's sales beat estimates, aided by improving trends in its travel retail business, which includes duty free shops, and its shares were up 3.3 percent.

Avon, which operates through a network of representatives, said revenue fell 8 percent in North America, worse than the 2 percent decline expected by BMO Capital Markets analyst Connie Maneaty.

"North American weakness was a surprise," Maneaty said. "We note, however, that the region does not determine overall EPS growth, and we expect it to firm up over time."

Elizabeth Arden, the maker of Britney Spears fragrances and Prevage anti-aging cream, said sales results were at the high end of its expectations. It cited more favorable foreign currency rates and signs of economic recovery.

"There are signs that economic conditions are beginning to improve, and, while early, we are expecting good performance from our new launches for the holiday season," said E. Scott Beattie, the company's chief executive.

Elizabeth Arden posted an unexpected profit of $40,000, or nil per share, in its fiscal first quarter [ID:nN29260659]. Excluding items, profit was 5 cents per share.

Analysts on average expected a loss of 6 cents per share, according to Thomson Reuters I/B/E/S.

Sales fell to $265.2 million but topped analysts' estimates for revenue of $262.9 million. Elizabeth Arden saw revenue fall 5.3 percent in its North American fragrance business and nearly 10 percent in its international business.

The company also raised the lower end of its full-year sales and earnings outlooks. It expects earnings for the full fiscal year of 55 to 65 cents per share on net sales expected to rise 2.5 percent to 3.5 percent. Its earlier forecast called for earnings of 50 to 65 cents per share and a 2 percent to 3.5 percent increase in sales.

The company forecast second-quarter earnings of 65 to 75 cents per share and net sales of $380 million to $390 million. Analysts on average were expecting earnings of 69 cents per share on revenue of $385.4 million.

AVON STRATEGY

Avon said third-quarter profit excluding restructuring costs was 42 cents per share. Analysts on average were expecting 40 cents, according to Thomson Reuters I/B/E/S. [ID:nN29260358]

Revenue fell to $2.55 billion, short of analysts' estimate of $2.57 billion.

Avon has been able to recruit more cosmetics sales representatives as rising unemployment, salary cuts and reductions in hours have forced people to seek out ways to make extra cash, but sales have suffered as consumers spend less.

Avon is meeting with investors on Thursday to discuss its results and outline strategies, such as steps to sustain growth in Latin America and improve results in North America. It previously announced plans to overhaul its supply chain and cut 1,200 jobs by 2013.

Avon said revenue rose 5 percent in Latin America and 1 percent in the Asia-Pacific region. Revenue fell 18 percent in Central and Eastern Europe and 6 percent in Western Europe, the Middle East and Africa, hurt by the weak U.S. dollar, which reduced the value of international sales. Excluding currency, revenue rose 7 percent in each of those regions.

Sanford Bernstein analyst Ali Dibadj said the North American results were disappointing, given the much easier comparisons with the weak year-ago quarter, but added that the overall results were also not likely to impress shareholders.

"North America did not get better. Latin America is still staying strong and that's supporting the company, but it doesn't look like it's a lot to write home about at this point," Dibadj said.

When Avon completes its restructuring in 2013, it expects to have mid-single-digit revenue growth and operating margins improving to mid-teen levels.

Avon said the ranks of its active representatives, who sell products such as Anew skin care and Jillian Dempsey makeup, increased 10 percent in the third quarter.

Avon shares were down 40 cents or 1.2 percent at $32.60 on the New York Stock Exchange late on Thursday morning, off an earlier low at $30.13. Elizabeth Arden shares were up 38 cents or 3.3 percent at $11.94 on the Nasdaq.