Avon Products Inc.’s (AVP) second-quarter GAAP earnings more than doubled to $167.6 million from $82.9 million in the year-ago period driven by higher sales and improved margins. Excluding special items, adjusted earnings came in at 48 cents per share, which topped both the Zacks Consensus Estimate of 45 cents and the year-ago result of 38 cents per share. Shares of Avon have gained more than 2% in morning trade on the New York Stock Exchange.
Avon’s total revenue increased 8.1% year-over-year to $2,679 million, beating the Zacks Consensus Estimate of $2,650 million. The growth was primarily attributable to a 6% benefit from price/mix, 1% increase in units sold and a 1% benefit from favorable foreign currency translations. The number of active representatives also rose 5% during the quarter.
Sales of Beauty products recorded a growth of 9%, driven by growth across all categories. Fragrance increased 16%, Color Cosmetics rose 12%, Skin Care grew 4% and Personal Care increased 3%.
Geographically, Avon’s North American revenues declined 6% as units sold fell 6% year-over-year, while active representatives decreased 4%. In Latin America, sales recorded a strong growth of 16% primarily driven by an impressive 33% growth in Brazil coupled with a 9% growth in Mexico. Active representatives in the region also grew 8%.
Avon’s revenue from Western Europe, the Middle East and Africa increased 18% year-over-year mainly due to a 15% growth in units sold and a 12% growth in active representatives. Revenue from Central and Eastern Europe also grew 10%, reflecting a 6% benefit from price/mix and a 3% benefit from favorable currency translations. The number of active representatives also rose 4% in the region.
Revenues from the Asia Pacific division logged a growth of 8% mainly driven higher units sold and favorable currency translations, while active representatives increased 3%. In China, revenues slipped 32% on the back of a 46% decline in units sold, partially offset by a 14% benefit from price/mix. Active representatives in the country also declined 18% in the quarter.
Avon’s gross margin during the quarter expanded 120 basis points (bps) year-over-year to 63.5% primarily due to better productivity, price increases and improved sourcing, partially offset by special items related to the currency devaluation in Venezuela. Operating margin during the quarter increased 270 bps to 10.1% reflecting improved gross margin and lower restructuring expenses.
Avon ended the quarter, with cash and cash equivalents of $984 million, compared to $1,221 million in the year-ago period. The company’s long-term debt-to-capitalization ratio also improved to 59.1% at the end of the quarter from 72.2% in the year-ago period. During the first half of 2010, Avon generated $241.1 million of cash from operations and deployed $189.5 million towards dividends, $144.4 million towards acquisitions and $139.5 million towards capital expenditure.
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