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After reporting dismal results over the past six quarters, Avon Products Inc. (AVP - Analyst Report) posted better-than-expected sales and earnings results for the fourth quarter and full year 2012. The company’s adjusted earnings per share (EPS) of 37 cents for the fourth quarter surpassed the Zacks Consensus Estimate of 27 cents per share.

For the full year, adjusted earnings of 85 cents per share were well above the Zacks Consensus Estimate of 76 cents. However, adjusted earnings for the year slipped substantially from $1.64 per share reported in the year-ago quarter.

However, on a reported basis, the company reported a loss of 37 cents per share for the fourth quarter and 10 cents per share for the full year.

Total revenue for the fourth quarter inched down 1% year over year to $2,999.1 million compared with $3,043.7 million a year ago. However, total revenue beat the Zacks Consensus Estimate of $2,996 million. Total units growth of 2% as well as a 1% improvement in Active Representatives, offset by 1% decline in price/mix, contributed to the top-line beat.

Full year revenue declined 5% to $10,717.1 million but surpassed the Zacks Consensus Estimate of $10,695 million.

Quarter Synopsis

During the quarter, Avon registered a revenue decline in its Beauty Products, Fashion and Home products categories, where sales decreased 5%, 5% and 4%, respectively. The decline in Beauty revenue was primarily due to short falls in its color, skincare, fragrance and personal care products.

Avon’s adjusted gross margin fell 130 basis points year over year to 59.9%, on account of the negative impact of product mix relating to weak inventory flows, mainly in Brazil. Adjusted operating profit dwindled 2.6%, while operating margin contracted 20 basis points to 9.2%, attributable to lower gross margin, which was nearly offset by lower operating expenses, relating to lower net brochure costs, lower overhead and advertising expenses.

Region-wise Performance

In the fourth quarter, Avon delivered 2% revenue increase in Latin America, primarily due to a 3% decline in Brazil, partially offset by a 9% rise in Mexico and a 2% rise in Venezuela. Units sold were up 6% during the quarter, while Active Representatives grew 6% year over year.

In North America, sales skidded 12% year over year, mainly due to a fall in Active Representatives. The North American Business, excluding Silpada, was down 11%. At Silpada, sales were down 18% as average orders as well as Active Representatives declined. Units sold for the region waned 11% year over year, while Active Representatives slipped 13%.

The beauty product manufacturer’s revenues in Europe, the Middle East and Africa inched up 1% year over year, primarily due to improvements in units sold as well as Active Representatives. Regional breakup shows that sales escalated in almost every operating region with Russia and Turkey increasing 3% and 1%, respectively, while revenue in UK and South Africa remained flat. Avon registered a 1% increase in Active Representatives, while units sold were up by 5% during the quarter.

The Asia-Pacific division witnessed a 3% dip in revenues. The region marked an 8% decline in Active Representatives and a 9% fall in units sold. Country-wise, the region recorded a 7% revenue increase in Philippines, largely offset by a 23% decline in China.

Other Financial Details

The leading global beauty company exited the quarter with cash and cash equivalents of $1,209.6 million, long-term debt (excluding current maturities) of $2,623.9 million, and shareholders’ equity of $1,233.3 million.

For the year ended Dec 31, 2012, the company earned net cash of $556.1 million for operational activities as against $655.8 million in the prior-year comparable period. Avon expended $228.8 million in capital expenditure during the year.

Moreover, earlier this morning, the company announced a quarterly dividend of 6 cents, which is payable on Mar 1, 2013 to shareholders of record as on Feb 26.

Avon currently retains a Zacks Rank #3 (Hold). Stocks performing well in the cosmetics space include Inter Parfums Inc. (IPAR - Snapshot Report), Nu Skin Enterprises Inc. (NUS - Snapshot Report), both of which have a Zacks Rank #1 (Strong Buy) and L'Oreal SA (LRLCY), which carries a Zacks Rank #2 (Buy).

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