Avon Reports Second-Quarter Total Revenue Up 17%; Beauty Sales Grew 19%; Active Representatives Up 7%; Earnings per Share Up 112% to $.55

NEW YORK, July 30 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE: AVP) today reported that second-quarter 2008 total revenue grew 17% year over year (9% in local currency) to $2.7 billion. Sales of Beauty products rose 19%. Active Representatives increased 7%, and units sold were up 5% versus the prior-year quarter. All six operating regions contributed to the growth in each of these measures.

Operating profit doubled, to $374 million from $187 million, and the company's operating margin rose to 13.7% from 8.0% in the year-ago quarter. Net income in the second quarter 2008 was $236 million compared with $113 million in the year-ago quarter. Earnings per share were $.55 versus $.26 per share in the prior-year quarter, or 112% higher.

Andrea Jung, chairman and CEO, commented, "The second quarter performance is the best that we have delivered since launching our turnaround in late 2005. Both top-line and bottom-line growth rates are among the strongest of the last two years. We achieved these results on the strength of our well-balanced geographic portfolio and the momentum of our turnaround plan.

"Our results this quarter contributed strongly to a six-month operating margin of 12.8%. With this solid year-to-date performance and the timing of our expected 2008 savings and benefits from strategic initiatives weighted to the second half of the year, we are well on our way to achieving our 2008 operating margin target. That target is to deliver a full-year 2008 operating margin that approaches 2005's level of approximately 14%.

"Like our peers, we are experiencing input cost pressures in the current business environment. The savings and benefits from our strategic initiatives, our ongoing ability to capture strategic price increases, and the leverage from our revenue growth are helping to offset these cost pressures," Ms. Jung concluded.

The company's 19% growth in Beauty sales included increases in all categories: Color was up 26%, Fragrance grew 17%, Skin Care increased 15% and Personal Care rose 17%.

Beauty sales benefited in part from a year-over-year 10% increase in advertising expense, to $103 million. Advertising supported the launch of new products, such as Pro-to-Go Lipstick and Anew Ultimate Eye Contouring System as well as Representative recruitment advertising in priority markets. Additionally, 2008's second quarter included an incremental $16 million of costs for initiatives to improve the Representative Value Proposition (RVP).

Second-quarter 2008 operating profit included costs associated with the company's restructuring program of $13 million ($.02 per share after tax), versus costs of $82 million ($.14 per share after tax) related to the company's Product Line Simplification (PLS) ($61 million) and restructuring programs ($21 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. Approximately $482 million of those costs were recorded through the second quarter of 2008. Additionally, Avon reiterated that it expects to achieve, beginning in 2010, 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.

The quarter's effective tax rate of 31.2% compared with 2007's rate of 32.3%.

At quarter end, Avon's total debt had increased $167 million from the year-end level, and cash had decreased $3 million. Net cash provided by operating activities was $172 million through six months of 2008 compared with $1 million of cash used by operating activities in the same period of 2007. This favorable comparison was due in large part to lower contributions to retirement-related plans and higher net income. Looking forward, the company said that it continues to expect full-year 2008 cash flow from operating activities to be substantially higher than that of full-year 2007.

Second-Quarter Regional Highlights

On continued strong performances in all markets, Latin America's second-quarter revenue rose 27% year over year (15% in local currency) to over $1 billion in the quarter for the first time. Avon said that revenue increased over 30% in Brazil, nearly 50% in Venezuela, over 20% in Colombia and 12% in Mexico. The region's Active Representatives increased 4%, and units sold were up 3%. Operating profit grew 65% versus the 2007 quarter, primarily due to higher revenue. Latin America's second-quarter operating margin was 18.6%.

The North America region reported a second-quarter revenue increase of 2% (1% in local currency) over the prior year. Both Active Representatives and units sold increased 5% from prior-year levels. Sales of Beauty products were 7% higher, with increases in all categories. Sales of Non-Beauty products declined 4%. Operating profit was 81% above that of the 2007 quarter, primarily due to lower obsolescence and overhead expenses. The region's operating margin was 11.9%.

In Central & Eastern Europe, second-quarter revenue rose 30% (15% in local currency). Revenue grew in excess of 30% in Russia as well as in other key markets in the region. The region's Active Representatives were up 20%, benefiting again from additional ordering opportunities through more frequent brochure distribution versus the year-ago period. Units sold increased 13%. Operating profit grew 100% year over year, reflecting lower obsolescence expense and higher revenue somewhat offset by higher RVP and advertising expense. Second-quarter operating margin was 21.2%.

The Western Europe, Middle East & Africa region achieved revenue growth of 14% (8% in local currency). Strong revenue growth continued in both the Turkey and U.K. markets, with revenue up nearly 20% and 6%, respectively. Year over year, the region's Active Representatives rose 4% and units sold increased 3%. Operating profit was 176% higher versus the 2007 quarter due to higher revenue and lower obsolescence and overhead expense. The region's second-quarter operating margin was 11.8%.

Asia-Pacific revenue increased 12% (1% in local currency), with the Philippines contributing revenue growth of over 20%. The region's Active Representatives rose 4% year over year, while units sold increased 2% compared with the prior year. Operating profit was up 70% year over year, primarily as a result of lower obsolescence and overhead expenses. The region's operating margin was 12.1%.

Revenue in China grew 20% (8% in local currency), Active Representatives were up 36% and units sold were 16% higher in the second quarter. The region reported an operating loss of $8 million versus a loss of $2 million in the 2007 period, primarily due to substantially higher advertising spending and somewhat lower gross margin resulting from unfavorable product mix. The region's second-quarter operating margin was (10.2)%.

Avon will conduct a conference call at 9:00 A.M. today to discuss the quarter's results. The dial-in number for the call is (800) 843-2086 in the U.S. or (706) 643-1815 from non-U.S. locations (conference ID number: 52518044). The call will be webcast live at www.avoninvestor.com and can be accessed or downloaded from that site for a period of two weeks.

Avon, the company for women, is a leading global beauty company, with over $10 billion in annual revenue. As the world's largest direct seller, Avon markets to women in more than 100 countries through over 5.5 million independent Avon Sales Representatives. Avon's product line includes beauty products, fashion jewelry and apparel, and features such well-recognized brand names as Avon Color, Anew, Skin-So-Soft, Advance Techniques, Avon Naturals, and Mark. Learn more about Avon and its products at www.avoncompany.com.


Statements in this release that are not historical facts or information are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "estimate," "project," "forecast," "plan," "believe," "may," "expect," "anticipate," "intend," "planned," "potential," "can," "expectation" and similar expressions, or the negative of those expressions, may identify forward-looking statements. Such forward-looking statements are based on management's reasonable current assumptions and expectations. Such forward-looking statements involve risks, uncertainties and other factors, which may cause the actual results, levels of activity, performance or achievement of Avon to be materially different from any future results expressed or implied by such forward-looking statements, and there can be no assurance that actual results will not differ materially from management's expectations. Such factors include, among others, the following:

    -- our ability to implement the key initiatives of and realize the
       operating margins and projected benefits (in the amounts and time
       schedules we expect) from our global business strategy, including our
       multi-year restructuring initiatives, product mix and pricing
       strategies, enterprise resource planning, customer service initiatives,
       product line simplification program, sales and operation planning
       process, strategic sourcing initiative, outsourcing strategies, zero-
       overhead-growth philosophy, cash flow from operations and cash
       management, tax, foreign currency hedging and risk management
    -- our ability to realize the anticipated benefits (including our
       projections concerning future revenue and operating margin increases)
       from our multi-year restructuring initiatives or other strategic
       initiatives on the time schedules or in the amounts that we expect, and
       our plans to invest these anticipated benefits ahead of future growth;
    -- the possibility of business disruption in connection with our
       multi-year restructuring initiatives or other strategic initiatives;
    -- our ability to realize sustainable growth from our investments in our
       brand and the direct selling channel;
    -- a general economic downturn or recession in one or more of our
       geographic regions, such as North America, and the ability of our
       broad-based geographic portfolio to withstand a downturn in a
       particular region;
    -- the inventory obsolescence and other costs associated with our product
       line simplification program;
    -- our ability to effectively implement initiatives to reduce inventory
       levels in the time period and in the amounts we expect;
    -- our ability to achieve growth objectives or maintain rates of growth,
       particularly in our largest markets and developing and emerging
    -- our ability to successfully identify new business opportunities and
       identify and analyze acquisition candidates, and our ability to
       negotiate and consummate acquisitions as well as to successfully
       integrate or manage any acquired business;
    -- the effect of political, legal and regulatory risks, as well as foreign
       exchange or other restrictions, imposed on us, our operations or our
       Representatives by governmental entities;
    -- our ability to successfully transition our business in China in
       connection with the resumption of direct selling in that market, our
       ability to operate using the direct selling model permitted in that
       market and our ability to retain and increase the number of Active
       Representatives there over a sustained period of time;
    -- the impact of substantial currency fluctuations on the results of our
       foreign operations;
    -- general economic and business conditions in our markets, including
       social, economic and political uncertainties in Latin America, Asia
       Pacific, Central and Eastern Europe and the Middle East;
    -- the risk of disruption in Central and Eastern Europe associated with a
       change to a more rapid selling cycle with more frequent brochures;
    -- information technology systems outages, disruption in our supply chain
       or manufacturing and distribution operations, or other sudden
       disruption in business operations beyond our control as a result of
       events such as acts of terrorism or war, natural disasters, pandemic
       situations and large scale power outages;
    -- the risk of product or ingredient shortages resulting from our
       concentration of sourcing in fewer suppliers;
    -- the quality, safety and efficacy of our products;
    -- the success of our research and development activities;
    -- our ability to attract and retain key personnel and executives;
    -- competitive uncertainties in our markets, including competition from
       companies in the cosmetics, fragrances, skin care and toiletries
       industry, some of which are larger than we are and have greater
    -- our ability to implement our Sales Leadership program globally, to
       generate Representative activity, to increase Representative
       productivity, to improve Internet-based tools for our Representatives,
       and to compete with other direct selling organizations to recruit,
       retain and service Representatives;
    -- the impact of the seasonal nature of our business, adverse effect of
       rising energy, commodity and raw material prices, changes in market
       trends, purchasing habits of our consumers and changes in consumer
       preferences, particularly given the global nature of our business and
       the conduct of our business in primarily one channel;
    -- our ability to continue to help offset higher commodity costs through
       the savings and benefits from our strategic initiatives, strategic
       price increases and holding cost growth below our revenue growth;
    -- our ability to protect our intellectual property rights;
    -- the risk of an adverse outcome in our material pending and future
    -- our ratings and our access to financing and ability to secure financing
       at attractive rates; and
    -- the impact of possible pension funding obligations, increased pension
       expense and any changes in pension regulations or interpretations
       thereof on our cash flow and results of operations.

Additional information identifying such factors is contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007, filed with the U.S. Securities and Exchange Commission. We undertake no obligation to update any such forward-looking statements.

                             AVON PRODUCTS, INC.
                     (In millions, except per share data)

                        Three months ended  Percent  Six months ended  Percent
                             June 30         Change       June 30       Change
                       -------------------  ------- ------------------ -------
                         2008      2007               2008      2007
                       --------  --------           --------  --------

    Net sales          $2,711.0  $2,306.4     18%   $5,188.9  $4,469.7    16%
    Other revenue          25.1      22.4               48.9      44.4
                        -------   -------           --------  --------
      Total revenue     2,736.1   2,328.8     17%    5,237.8   4,514.1    16%

    Cost of sales (1)     993.4     921.1            1,917.1   1,753.6
    Selling, general and
     expenses (1)       1,368.8   1,220.8            2,650.6   2,335.8
                        -------   -------           --------  --------
      Operating profit    373.9     186.9    100%      670.1     424.7    58%
                        -------   -------           --------  --------
    Interest expense       26.1      28.1               52.2      54.6
    Interest income        (8.6)    (10.3)             (17.8)    (22.6)
    Other expense, net     12.0       1.2               12.7       1.8
                        -------   -------           --------  --------
      Total other
       expenses            29.5      19.0               47.1      33.8

    Income before taxes
     and minority
     interest             344.4     167.9    105%      623.0     390.9    59%
    Income taxes          107.4      54.2              199.8     126.6
                        -------   -------           --------  --------
    Income before
     minority interest    237.0     113.7              423.2     264.3
    Minority interest      (1.4)     (1.0)              (2.9)     (1.6)
                        -------   -------           --------  --------
    Net income           $235.6    $112.7    109%     $420.3    $262.7    60%
                        =======   =======           ========  ========

    Earnings per share:
    Basic                  $.55      $.26    112%       $.99      $.60    65%
                        =======   =======           ========  ========
    Diluted                $.55      $.26    112%       $.98      $.60    63%
                        =======   =======           ========  ========

    Average shares
    Basic                426.57    434.85             426.68    437.71
    Diluted              430.30    438.45             430.34    441.09

    (1) For the three and six months ended June 30, 2008, costs to implement
        restructuring initiatives impacted cost of sales by $0.3, and selling,
        general and administrative expenses by $13.0 and $38.5, respectively.
        For the three and six months ended June 30, 2007, costs to implement
        restructuring initiatives impacted cost of sales by $0.0 and $0.7,
        respectively, and selling, general and administrative expenses by
        $20.5 and $29.5, respectively.

                             AVON PRODUCTS, INC.
                                (In millions)

                                                   June 30            Dec 31
                                                    2008               2007
                                                 ----------         ----------
    Cash, including cash equivalents               $960.3             $963.4
    Accounts receivable, net                        787.4              840.4
    Inventories                                   1,202.7            1,041.8
    Prepaid expenses and other                      789.2              669.8
                                                 ----------         ----------
    Total current assets                          3,739.6            3,515.4

    Property, plant and equipment, net            1,377.3            1,278.2
    Other assets                                    958.4              922.6
                                                 ----------         ----------
    Total assets                                  6,075.3            5,716.2
                                                 ==========         ==========
    Debt maturing within one year                   592.7              929.5
    Accounts payable                                740.8              800.3
    Other current liabilities                     1,235.5            1,323.6
                                                 ----------         ----------
    Total current liabilities                     2,569.0            3,053.4

    Long-term debt                                1,671.5            1,167.9
    Other non-current liabilities                   783.8              783.3

    Total shareholders' equity                    1,051.0              711.6
                                                 ----------         ----------
    Total liabilities and shareholders' equity   $6,075.3           $5,716.2
                                                 ==========         ==========

                             AVON PRODUCTS, INC.
                                (In millions)

                                                          Six Months Ended
                                                              June 30
                                                        2008            2007
                                                      --------        --------
    Cash Flows from Operating Activities:
    Net income                                        $420.3          $262.7
      Depreciation and amortization                     92.7            87.7
      Provision for doubtful accounts                   95.3            75.0
      Provision for obsolescence                        28.9           126.5
      Share-based compensation                          31.1            34.1
      Deferred income taxes                              3.7             9.2
      Other                                             20.2            16.0

    Changes in assets and liabilities:
      Accounts receivable                               (7.5)          (28.9)
      Inventories                                     (145.2)         (226.8)
      Prepaid expenses and other                      (101.5)          (40.3)
      Accounts payable and accrued liabilities        (231.9)         (152.1)
      Income and other taxes                            (8.9)          (49.5)
      Noncurrent assets and liabilities                (24.8)         (114.5)
                                                      --------       --------
    Net cash provided (used) by operating activities   172.4            (0.9)

    Cash Flows from Investing Activities:
    Capital expenditures                              (136.0)          (83.7)
    Disposal of assets                                   5.1             7.2
    Other investing activities                          (0.2)          (18.0)
                                                      --------       --------
    Net cash used by investing activities             (131.1)          (94.5)

    Cash Flows from Financing Activities:
    Cash dividends                                    (177.3)         (165.1)
    Total debt, net change                             155.8           292.7
    Repurchase of common stock                        (120.9)         (410.1)
    Proceeds from exercise of stock
     options, net of excess tax benefits                33.6            57.9
                                                      --------       --------
    Net cash used by financing activities             (108.8)         (224.6)

    Effect of exchange rate changes on
     cash and cash equivalents                          64.4            24.5
                                                      --------       --------
    Net decrease in cash and cash equivalents          $(3.1)        $(295.5)
                                                      ========       ========

                             AVON PRODUCTS, INC.
                            SUPPLEMENTAL SCHEDULE
                                (In millions)

                          THREE MONTHS ENDED 6/30/08

                               REGIONAL RESULTS

                           Total       in Local  Operating    Op.       Active
                         Revenue US$   Currency  Profit US$ Margin Units Reps
                     ----------------- -------- ----------- ------ ----- -----
    $ in Millions
                                %var.    %var.        %var.        %var. %var.
                                  vs      vs            vs   2008    vs    vs
                                 2Q07    2Q07          2Q07 percent 2Q07  2Q07
                     ----------- ----- -------- ------ ---- ------- ---- -----
    Latin America       $1,010.7  27%     15%   $187.5  65%  18.6%   3%    4%
    North America (1)      633.3   2       1      75.2  81   11.9    5     5
    Central & Eastern
     Europe (2)            432.6  30      15      91.6 100   21.2   13    20
    Western Europe,
     Middle East &
     Africa                354.6  14       8      41.9 176   11.8    3     4
    Asia Pacific           227.2  12       1      27.5  70   12.1    2     4
    China                   77.7  20       8      (7.9)  *  -10.2   16    36
    Total from
     Operations          2,736.1  17       9     415.8  80   15.2    5     7
    Global Expenses            -   -       -     (41.9)  4      -    -     -
    Consolidated (1)(2) $2,736.1  17%      9%   $373.9 100%  13.7%   5%    7%

                             CATEGORY SALES (US$)
                                                                    % var. vs
     (cosmetics/fragrances/skin care/toiletries)    $1,960.9             19%
    Beauty Plus
     (fashion jewelry/watches/apparel/accessories)     522.8             16
    Beyond Beauty
     (home products/gift and decorative products)      227.3              9
                                                    --------         --------
       Net Sales                                    $2,711.0             18%
    Other Revenue                                       25.1             12
                                                    --------         --------
       Total Revenue                                $2,736.1             17%

                           SIX MONTHS ENDED 6/30/08

                               REGIONAL RESULTS

                            Total      in Local  Operating    Op.       Active
                        Revenue US$    Currency  Profit US$ Margin Units Reps
                     ----------------- --------  ---------- ------ ----- -----
    $ in Millions
                                %var.   %var.         %var.        %var. %var.
                                  vs      vs            vs   2008    vs    vs
                                 1H07    1H07          1H07 percent 1H07  1H07
                     ----------- ----- -------- ------ ---- ------- ---- -----
    Latin America       $1,875.0  29%     17%   $308.1  52%  16.4%   6%    9%
    North America (1)    1,226.9  -2      -3     139.1  17   11.3   -3     3
    Central & Eastern
     Europe (2)            854.2  23      10     184.7  50   21.6    9    23
    Western Europe,
     Middle East &
     Africa                671.6  15       8      61.2 112    9.1    3     3
    Asia Pacific           444.6  10      -1      50.5  36   11.4    1     4
    China                  165.5  24      14       5.7   *    3.4   14    65
    Total from
     Operations          5,237.8  16       7     749.3  47   14.3    4    10
    Global Expenses            -   -       -     (79.2)  9      -    -     -
    Consolidated (1)(2) $5,237.8  16%      7%   $670.1  58%  12.8%   4%   10%

                             CATEGORY SALES (US$)
                                                                     % var. vs
     (cosmetics/fragrances/skin care/toiletries)    $3,740.7              18%
    Beauty Plus
     (fashion jewelry/watches/apparel/accessories)     990.5              13
    Beyond Beauty
     (home products/gift and decorative products)      457.7              10
                                                    --------         ---------
       Net Sales                                    $5,188.9              16%
    Other Revenue                                       48.9              10
                                                    --------         ---------
       Total Revenue                                $5,237.8              16%

    * Calculation not meaningful

    (1) North America Active Representative growth benefited from increased
        ordering opportunities in Canada as a result of a move from a three-
        week campaign cycle to a two-week campaign cycle beginning in the
        second quarter of 2008.

    (2) Central & Eastern Europe Active Representative growth benefited from
        increased ordering opportunities as a result of a move from a four-
        week campaign cycle to a three-week campaign cycle in the second half
        of 2007.

SOURCE Avon Products, Inc.

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