Avon Products 2nd-quarter net income jumps on higher revenue, particularly in Latin America

Avon Products 2Q net income jumps

NEW YORK — Stronger sales of beauty products and growth in Latin America helped Avon Products Inc.’s second-quarter net income rise as it shifts away from less-profitable categories such as home products.

Shares rose nearly 5 percent in morning trading.

The beauty products seller said perfume and makeup were particularly strong sellers during the quarter.

North American sales — which make up about 20 percent of Avon’s revenue — remained weak, down 6 percent to $546.4 million, hurt by lower average orders and fewer independent sellers recruited.

But overall net income rose to $167.6 million, or 39 cents per share. That compares with $82.9 million, or 19 cents per share last year. Excluding costs related to the devaluation of the Venezuelan currency, net income totaled 48 cents per share, compared with 38 cents per share last year.

Analysts polled by Thomson Reuters, on average, predicted net income of 45 cents per share. Analyst estimates typically exclude one-time items.

Revenue rose 8 percent to $2.68 billion from $2.48 billion last year, ahead of analyst expectations of $2.66 billion.

Revenue grew across all categories, with 16 percent growth in perfume and 12 percent growth in color cosmetics.

Avon stepped up advertising during the quarter, spending $97 million, 19 percent more than the prior year, mainly in Latin America. In that region, Avon’s largest, revenue rose 16 percent to $1.14 billion, helped by strength in Brazil and Mexico, offset by weakness in Venezuela.

Revenue rose in most other regions but fell 32 percent in China, Avon’s smallest region.

About 80 percent of Avon’s revenue comes from outside of U.S. borders.

The company is at the tail end a cost-cutting program. It spent $11 million, or 2 cents per share on the programs, compared to 19 cents per share in the prior-year period.

In response to the recession, Avon, based in New York, stepped up recruitment for active sellers and added more under-$5 products to its mix. But it is now adding some higher-priced — and more profitable — skin care and jewelry lines to its roster, mainly through acquisitions.

To that end, earlier this year the company purchased Liz Earle, which sells skin-care products, and Tiny Tillia, which sells “mommy and baby” products such as and toys and bubble bath.

On Wednesday it completed its $650 million acquisition of Silpada Designs, a direct seller of sterling silver jewelry in the U.S., Canada and the U.K., in an effort to expand that business.

Silpada makes more expensive jewelry than Avon currently sells. Silpada’s prices range from $12 to $279, with an average of $64, according to its Web site.

CEO Andrea Jung said “reshaping” Avon’s product portfolio through the acquisitions toward higher-margin and more competitive products is “very, very important to the short and long-term growth strategy for the company.”

“The focus is, now that we’ve completed these deals, realizing the full potential of these acquisitions,” she added.

Shares rose $1.36, or 4.6 percent, to $30.89 during midday trading. The stock has traded between $25 and $36.39 during the past 52 weeks.