Oct 30, 2008
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Avon profit misses Street view, shares tumble

Oct 30, 2008

By Aarthi Sivaraman

NEW YORK (Reuters) - Avon Products Inc AVP.N, the world's largest direct seller of cosmetics, posted a quarterly profit that missed Wall Street expectations due to a drop in North American sales, sending shares down nearly 22 percent.

The company also warned on Thursday that trends in North America could deteriorate further as consumers spend less in a weak economy.

Companies like Avon and rivals Estee Lauder EL.N and Elizabeth Arden RDEN.O are generally seen as less susceptible to economic woes, since consumers are likely to cut back on items like clothing or jewelry before they sacrifice their personal care or makeup brands.

Estee dented that notion earlier this week when it cut its full-year outlook, as shoppers facing higher prices, job losses, and a housing slump have clamped down on spending.

Avon echoed those woes on Thursday, saying tight consumer spending in North America weighed on its results, and that it expects that trend to worsen in the fourth quarter. The company lowered its full-year operating margin growth view to 13 percent from a previous level of 14 percent.

The company's net profit rose to $222.6 million, or 52 cents a share in the third quarter ended September 30, from $139.1 million, or 32 cents a share, a year earlier.

Excluding a restructuring charge and a one-time tax benefit, Avon earned 45 cents a share, missing analysts' average expectation for a profit of 52 cents a share, according to Reuters Estimates.


Total quarterly sales rose 13 percent to $2.6 billion. Sales in North America fell 3 percent. Sales were up 25 percent in its Latin America market and 25 percent in China.

Avon noted that it has not seen any measurable impact of the economic and financial crisis outside North America, but was keeping a close eye on those markets.

Avon also expects the recent strength in the U.S. dollar to hurt fourth-quarter and full-year growth rates and operating margins.

The company said it continues to expect revenue to grow at an average mid-single-digit rate over the long term.

Avon's shares were down $5.82 at $20.85.

(Reporting by Aarthi Sivaraman, editing by Maureen Bavdek)

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