Avon Reports Second Quarter 2012 Results
Avon Beauty sales declined 9%, or were flat in constant dollars. On a reported basis, fragrance was down 8%, color was down 9%, and skincare and personal care both declined by 10%. On a constant-dollar basis, fragrance increased 1%, color was flat, and skincare and personal care were both down 1%.
Second-quarter 2012 gross margin was 62.8%, 160 basis points lower than the prior-year quarter, due to higher product costs impacted by inflationary pressures, as well as negative impact from foreign exchange.
Selling, general and administrative expense in the quarter increased as a percent of revenue by 460 basis points versus second-quarter 2011, or 350 basis points on an adjusted non-GAAP basis, due to lower revenues while continuing to incur overhead expenses that do not vary directly with revenue, higher professional fees and wage inflation. Negative impacts of foreign exchange and an increased investment in brochures were also factors. This was offset by a $24 million decline in advertising, down 29% to $58 million, and a $4 million decrease in Representative Value Proposition2 ("RVP").
In the quarter, the Company took further action to enhance its operating model, reduce costs, and improve efficiencies. The Company recorded costs associated with restructuring of $38 million pre-tax, up from $12 million pre-tax in the year-ago period, or $0.06 and $0.02 per diluted share, respectively.
Operating profit was $127 million in the quarter and operating margin was 4.9%. Adjusted non-GAAP operating profit was $165 million and adjusted non-GAAP operating margin was 6.4%, down 510 basis points from the second quarter of 2011.
Second-quarter 2012's effective tax rate was 30.9%, versus 28.9% in the second quarter of 2011. On an adjusted non-GAAP basis, the effective tax rate was 31.2%, versus 29.1% in the second-quarter 2011, due primarily to lower benefits from audit settlements and statute expirations.
Income from continuing operations in the second quarter of 2012 was $63 million, or $0.14 per diluted share. Adjusted non-GAAP income from continuing operations was $89 million, or $0.20 per diluted share.
Net cash provided by operating activities was $41 million for the six months ended June 30, 2012, compared with $101 million in the same period of 2011, as lower net income was partially offset by improvements in working capital, lower contributions to the U.S. pension plan, and a payment in 2011 associated with a long-term incentive compensation plan. The overall net cash generated in the six months ended June 30, 2012 was $31 million, compared with a use of $169 million for the same period in 2011, primarily due to lower debt repayments.
Avon's net debt (total debt less cash) for the second quarter of 2012 was $2.3 billion, up $194 million from the year-end level, primarily due to a new term loan in the amount of $500 million in the quarter, partially offset by commercial paper repayments.
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