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Avon's business improves as Brazil, Russia sales rise

Avon products are seen at a sale in New York April 18, 2009. REUTERS/Eric Thayer
Avon products are seen at a sale in New York April 18, 2009. REUTERS/Eric Thayer

By Phil Wahba

(Reuters) - Avon Products Inc's business showed signs of life in the last three months of 2012 as the struggling beauty company sold more items, attracted more sales representatives and cut marketing and personnel costs.

Avon grappled earlier in the year with the loss of many of its "Avon Ladies" sales representatives, unhappy with their earning potential and the weak support they received from the company. Meantime, sales stalled in key emerging markets such as Russia and Brazil, and continued to deteriorate in the United States.

But Avon on Tuesday said it sold 2 percent more items in the quarter that ended December 31, and that the number of sales representatives increased 1 percent, halting at least for a now a shrinking of the direct seller's salesforce.

Chief Executive Sheri McCoy, who took the reins last April, called those numbers "early signs of stabilization" and said she expects progress to continue this year.

Avon's shares rose 7.1 percent to $18.50 in premarket trading, putting them on track to hit their highest levels since smaller rival Coty Inc in May withdrew an unsolicited bid to buy Avon.

In Brazil, its top market, revenue excluding the impact of currency rose 10 percent as more sales reps signed up. Business in Russia also improved, rising 3 percent.

Still, illustrating how much work lies ahead for Avon, North American revenue fell 12 percent while its salesforce shrank 13 percent, continuing a years-long decline at home.

In Asia, the world's fastest-growing market for cosmetics, revenue was down 3 percent, largely because of shriveling sales in China.

"The U.S. is still imploding." said Ali Dibadj, a Sanford C. Bernstein analyst. "There really is only Brazil that did well."

Avon reported a net quarterly loss of $162.2 million, or 37 cents per share, compared with a loss of $400,000, or nil per share a year ago, and said revenue fell 1 percent to $3 billion a year earlier.

On an adjusted basis, which excluded factors like a write-down for its Silpada business, Avon had a profit from continuing operations of 37 cents per share, beating Wall Street analyst estimates by 10 cents, according to Thomson Reuters I/B/E/S.

The company is in the process of cutting $400 million in selling, general and administrative costs per year and has cut hundreds of jobs and exited markets like Korea and Vietnam.

In its statement, Avon said it may repatriate cash held offshore to meet its domestic funding needs. Last year it slashed its dividend.

In announcing the results, Avon did not provide an update on a U.S. probe into whether the company had broken anti-bribery laws overseas several years ago. In November, the company had said discussions were "ongoing."

Avon has more exposure than most Western companies to Venezuela, where it gets 5 percent of its revenue.

Following the Venezuelan government's decision last week to devalue the country's currency 32 percent, Avon said it expects a $50 million after-tax loss this year for the write-down of some assets. It also sees $50 million in charges in the first half of 2013 related to the historical cost in U.S. dollars of non-cash items such as inventory.

(Reporting by Phil Wahba; Editing by Chizu Nomiyama and Maureen Bavdek)

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