Avon Products, Inc., reported third-quarter 2009 total revenue of $2.6 billion, 4% lower than that of 2008’s third quarter, but up 7% on a local-currency basis as foreign exchange pressured growth by 11 percentage points. Beauty sales in the third quarter of 2009 were 3% lower versus the prior-year period, but increased 8% on a local-currency basis. Active Representatives grew 10%, with growth in all regions. Units overall rose 5% versus the prior-year quarter and Beauty units increased 6%.

Avon’s 8% local-currency growth in Beauty sales included gains in all categories: fragrance, color cosmetics, skin care and personal care grew 9%, 17%, 1%, and 7%, respectively. On a reported basis, these growth rates were -4%, +4%, -8% and -4%, respectively.

Third-quarter 2009 gross margin of 62.6% was 50 basis points below that of the prior-year quarter. Strong manufacturing productivity gains, benefits from the company’s Strategic Sourcing Initiative, and strategic price increases offset most of 140 basis points of unfavorable transaction-exchange impact on 2009 gross margin.

Selling, general and administrative expense in the quarter rose as a percent of revenue by 50 basis points versus 2008’s third quarter. This was due primarily to higher year-over-year costs to implement restructuring initiatives as well as foreign exchange transaction impact.

Advertising for the quarter was $84 million, down $22 million from last year’s period. The company was able to maintain its advertising presence at a level similar to a year ago, benefiting from improved buying productivity and general softness in media prices. Avon invested an incremental $7 million in the quarter on initiatives to further improve its Representative Value Proposition.

Net income in the third quarter 2009 was $156 million, or $.36 per share, compared with $223 million, or $.52 per share, in the year-ago quarter.

At quarter end, Avon’s total debt had increased $272 million from the year-end level, to $2.8 billion, and cash had increased $189 million, to $1.3 billion. Net cash provided by operating activities was $247 million through nine months of 2009 compared with $303 million of cash provided by operating activities in the same period of 2008, with the change due primarily to lower net income offset partially by the timing of payments related to the company’s restructuring programs.

Third-Quarter Regional Results Latin America’s third-quarter 2009 revenue was 5% higher year over year, or up 18% on a local-currency basis. Local-currency revenue increased 22% in Brazil, 7% in Mexico and 24% in Venezuela, which, on a reported basis, were +7%, -18% and +24%, respectively. The region’s Active Representatives grew 13%, and units sold were up 10%. Operating profit was 7% lower (but increased 4% in local currency) due primarily to the impact of unfavorable foreign exchange. Latin America’s third-quarter operating margin was 17.3%. Third-quarter revenue in North America declined 8%, with no material impact from foreign exchange. Active Representatives were up 4% versus the prior-year quarter. Units sold were 5% lower versus the prior year. The region’s revenue continued to be pressured by lower consumer spending and a continued double-digit decline in non-Beauty (Fashion and Home categories). North America’s third-quarter operating profit decreased 19% (-15% in local currency) versus the 2008 quarter as $11 million in costs to implement restructuring initiatives offset profit growth that had been achieved through significant cost control. The region’s operating margin was 4.5%. In Central & Eastern Europe, third-quarter revenue was 18% lower year over year but up 7% on a local-currency basis. Local-currency revenue increased 18% in Russia (-9% on a reported basis). The region’s Active Representatives grew 8% in the quarter, and units sold were flat versus the prior-year’s quarter. Operating profit decreased 21% (but increased 10% in local currency) versus the 2008 quarter, primarily due to the impact of unfavorable foreign exchange. The region’s operating margin was 14.9%. Western Europe, Middle East & Africa’s third-quarter revenue decreased 6% versus the prior-year quarter but rose 7% on a local-currency basis. Local-currency revenue increased 2% in the U.K. and 10% in Turkey, which, on a reported basis, were -13% and -12%, respectively. The region’s Active Representatives grew 9% year over year, and units sold increased 22%. Operating profit decreased 36% (-9% in local currency) versus the 2008 quarter, primarily due to the impact of unfavorable foreign exchange, but also costs to implement restructuring initiatives. The region’s operating margin was 4.0%. Asia-Pacific’s third-quarter revenue increased 1% year over year (+2% on a local-currency basis). On a local-currency basis, 16% growth in the Philippines (+9% on a reported basis) offset continued weakness in Japan. The region’s Active Representatives were 6% higher, and units sold were up 4% over the prior-year period. Operating profit decreased 5% (but increased 3% in local currency) versus the 2008 quarter, due primarily to the impact of unfavorable foreign exchange. The region’s operating margin was 10.4%. Third-quarter revenue in China decreased 11% year over year, with no impact from foreign exchange. Units sold decreased 19%. Revenue from Beauty Boutiques decreased over 40% in the quarter, reflecting the continued complex evolution towards direct selling in this hybrid business model, which is unique to this market. Revenue growth from direct selling mirrored Active Representative growth at 7% in the third quarter. The timing of incentive programs and product launches dampened direct-selling revenue during the quarter. Representative recruiting remained consistently strong in the quarter and Avon said that it remains confident in the potential of direct selling in this market. China had operating profit of $3 million in the quarter compared with a loss of $7 million in the 2008 quarter, primarily due to focus on cost controls. The region’s operating margin was 3.7%. Commenting on the company’s overall performance in the third quarter, Andrea Jung, Chairman and CEO, remarked, “We are pleased with the third quarter’s 7% local-currency-revenue growth, particularly in this economic environment. Our broad-based strength is proof that our strategies to focus on representative recruiting and Avon’s “Smart Value” products are working. Active Representatives and Beauty revenue both grew strongly as we expanded Representative coverage and Beauty market share across our portfolio.”Avon Products, Inc. (NYSE: AVP) today reported third-quarter 2009 total revenue of $2.6 billion, 4% lower than that of 2008’s third quarter, but up 7% on a local-currency basis as foreign exchange pressured growth by 11 percentage points. Beauty sales in the third quarter of 2009 were 3% lower versus the prior-year period, but increased 8% on a local-currency basis. Active Representatives grew 10%, with growth in all regions. Units overall rose 5% versus the prior-year quarter and Beauty units increased 6%.

Avon’s 8% local-currency growth in Beauty sales included gains in all categories: fragrance, color cosmetics, skin care and personal care grew 9%, 17%, 1%, and 7%, respectively. On a reported basis, these growth rates were -4%, +4%, -8% and -4%, respectively.

Third-quarter 2009 gross margin of 62.6% was 50 basis points below that of the prior-year quarter. Strong manufacturing productivity gains, benefits from the company’s Strategic Sourcing Initiative, and strategic price increases offset most of 140 basis points of unfavorable transaction-exchange impact on 2009 gross margin.

Selling, general and administrative expense in the quarter rose as a percent of revenue by 50 basis points versus 2008’s third quarter. This was due primarily to higher year-over-year costs to implement restructuring initiatives as well as foreign exchange transaction impact.

Advertising for the quarter was $84 million, down $22 million from last year’s period. The company was able to maintain its advertising presence at a level similar to a year ago, benefiting from improved buying productivity and general softness in media prices. Avon invested an incremental $7 million in the quarter on initiatives to further improve its Representative Value Proposition.

As announced earlier this month, third-quarter 2009 expenses included costs associated with the company’s 2005 and 2009 restructuring programs totaling $34 million pretax, or $.06 per share after tax. This compared with costs of $14 million, or $.02 per share, related to the company’s 2005 restructuring program in the prior-year period.

Third-quarter 2009 operating profit was $259 million compared with $297 million in the prior-year quarter. The company’s third-quarter 2009 operating margin was 10.1%, compared with 11.2% in the third quarter of 2008. Costs to implement restructuring initiatives lowered 2009’s operating margin 130 basis points and lowered 2008’s operating margin by 50 basis points. Additionally, unfavorable foreign exchange lowered operating margin by an estimated 270 basis points (approximately 180 of that from foreign-exchange transaction and approximately 90 from foreign-exchange translation) year over year.

Third quarter 2009’s effective tax rate of 32.0% compared with third quarter 2008’s rate of 19.5%, which included one-time favorable tax adjustments. These adjustments benefited the prior-year period by $.09 per share.

Net income in the third quarter 2009 was $156 million, or $.36 per share, compared with $223 million, or $.52 per share, in the year-ago quarter.

At quarter end, Avon’s total debt had increased $272 million from the year-end level, to $2.8 billion, and cash had increased $189 million, to $1.3 billion. Net cash provided by operating activities was $247 million through nine months of 2009 compared with $303 million of cash provided by operating activities in the same period of 2008, with the change due primarily to lower net income offset partially by the timing of payments related to the company’s restructuring programs.

Third-Quarter Regional Results

Latin America’s third-quarter 2009 revenue was 5% higher year over year, or up 18% on a local-currency basis. Local-currency revenue increased 22% in Brazil, 7% in Mexico and 24% in Venezuela, which, on a reported basis, were +7%, -18% and +24%, respectively. The region’s Active Representatives grew 13%, and units sold were up 10%. Operating profit was 7% lower (but increased 4% in local currency) due primarily to the impact of unfavorable foreign exchange. Latin America’s third-quarter operating margin was 17.3%.

Third-quarter revenue in North America declined 8%, with no material impact from foreign exchange. Active Representatives were up 4% versus the prior-year quarter. Units sold were 5% lower versus the prior year. The region’s revenue continued to be pressured by lower consumer spending and a continued double-digit decline in non-Beauty (Fashion and Home categories). North America’s third-quarter operating profit decreased 19% (-15% in local currency) versus the 2008 quarter as $11 million in costs to implement restructuring initiatives offset profit growth that had been achieved through significant cost control. The region’s operating margin was 4.5%.

In Central & Eastern Europe, third-quarter revenue was 18% lower year over year but up 7% on a local-currency basis. Local-currency revenue increased 18% in Russia (-9% on a reported basis). The region’s Active Representatives grew 8% in the quarter, and units sold were flat versus the prior-year’s quarter. Operating profit decreased 21% (but increased 10% in local currency) versus the 2008 quarter, primarily due to the impact of unfavorable foreign exchange. The region’s operating margin was 14.9%.

Western Europe, Middle East & Africa’s third-quarter revenue decreased 6% versus the prior-year quarter but rose 7% on a local-currency basis. Local-currency revenue increased 2% in the U.K. and 10% in Turkey, which, on a reported basis, were -13% and -12%, respectively. The region’s Active Representatives grew 9% year over year, and units sold increased 22%. Operating profit decreased 36% (-9% in local currency) versus the 2008 quarter, primarily due to the impact of unfavorable foreign exchange, but also costs to implement restructuring initiatives. The region’s operating margin was 4.0%.

Asia-Pacific’s third-quarter revenue increased 1% year over year (+2% on a local-currency basis). On a local-currency basis, 16% growth in the Philippines (+9% on a reported basis) offset continued weakness in Japan. The region’s Active Representatives were 6% higher, and units sold were up 4% over the prior-year period. Operating profit decreased 5% (but increased 3% in local currency) versus the 2008 quarter, due primarily to the impact of unfavorable foreign exchange. The region’s operating margin was 10.4%.

Third-quarter revenue in China decreased 11% year over year, with no impact from foreign exchange. Units sold decreased 19%. Revenue from Beauty Boutiques decreased over 40% in the quarter, reflecting the continued complex evolution towards direct selling in this hybrid business model, which is unique to this market. Revenue growth from direct selling mirrored Active Representative growth at 7% in the third quarter. The timing of incentive programs and product launches dampened direct-selling revenue during the quarter. Representative recruiting remained consistently strong in the quarter and Avon said that it remains confident in the potential of direct selling in this market. China had operating profit of $3 million in the quarter compared with a loss of $7 million in the 2008 quarter, primarily due to focus on cost controls. The region’s operating margin was 3.7%.

Commenting on the company’s overall performance in the third quarter, Andrea Jung, Chairman and CEO, remarked, “We are pleased with the third quarter’s 7% local-currency-revenue growth, particularly in this economic environment. Our broad-based strength is proof that our strategies to focus on representative recruiting and Avon’s “Smart Value” products are working. Active Representatives and Beauty revenue both grew strongly as we expanded Representative coverage and Beauty market share across our portfolio.”