Avon Reports Fourth-Quarter and Full-Year 2016 Results

LONDON, Feb. 16, 2017

"We made good progress in the first year of our Transformation Plan, exceeding our cost savings targets, improving our profit margin, and significantly strengthening our balance sheet. However, the financial results for the fourth quarter were disappointing, largely due to the decline in Active Representatives and an unexpected increase in bad debt expense," said Sheri McCoy, Chief Executive Officer, Avon Products Inc. "As we move into 2017, we are taking actions to deliver more consistent performance across our markets, with Representative engagement remaining a key priority in our growth plan, while navigating continued challenging global economic and political headwinds."

Highlights for Fiscal 2016:

• Revenue declined 7% to $5.7 Billion; Increased 2% in constant dollars
• Active Representatives and Ending Representatives, both from Reportable Segments, declined 1% and were relatively unchanged, respectively
• Operating Margin increased 290 bps to 5.6%; Adjusted¹ Operating Margin increased 80 bps to 6.5%
• Diluted Loss Per Share From Continuing Operations of $0.25; Adjusted Diluted Earnings Per Share From Continuing Operations of $0.04
• Foreign currency negatively impacted Diluted Earnings Per Share by an estimated $0.27 per share and Adjusted Diluted Earnings Per Share by an estimated $0.28 per share, driven in each case by the strength of the U.S. dollar against the currencies of the countries in which the Company operates
• The Company realized an estimated $120 Million of cost savings in year one of the Transformation Plan
• Debt was reduced by approximately $260 Million and the maturity profile was extended

Highlights for Fourth Quarter of 2016:

• Revenue declined 2% to $1.6 Billion; Relatively unchanged in constant dollars
• Active Representatives from Reportable Segments declined 2%
• Bad Debt Expense increased 210 bps, primarily in Brazil
• Operating Margin increased 290 bps to 6.8%; Adjusted Operating Margin increased 130 bps to 7.3%
• Diluted Loss Per Share From Continuing Operations of $0.03; Adjusted Diluted Earnings Per Share From Continuing Operations of $0.01
  

Full-Year 2016 Income Statement Highlights (compared with full-year 2015)

• Total revenue for Avon Products, Inc. declined 7% to $5.7 billion, but increased 2% in constant dollars.
• Total revenue from reportable segments declined 7% to $5.7 billion, but increased 3% in constant dollars.
  • Active Representatives declined 1%, primarily due to a decline in Asia Pacific that was partially offset by an increase in Europe, Middle East & Africa.
  • Average order increased 4% due to growth in all reportable segments as the Company benefited from pricing actions.
  • Ending Representatives were relatively unchanged as growth in Europe, Middle East & Africa and South Latin America was offset by a decline in Asia Pacific.
• Gross margin was 60.5%, up 20 basis points and Adjusted gross margin was 60.5%, down 30 basis points. These year-over-year comparisons were negatively impacted by an approximate 260 basis point impact from foreign exchange, largely offset by pricing actions and lower supply chain costs.
• Operating margin was 5.6%, up 290 basis points while Adjusted operating margin was 6.5%, up 80 basis points. These year-over-year comparisons benefited from the favorable net impact of price/mix, as well as continued benefits from cost savings initiatives. These benefits were partially offset by approximately 310 basis points of unfavorable impact of foreign exchange, as well as an increase in bad debt expense, primarily in Brazil.
• The provision for income taxes was $125 million, compared with $819 million for 2015. The 2015 tax provision was most significantly impacted by valuation allowances for U.S. deferred tax assets. On an Adjusted basis, the provision for income taxes was $166 million, compared with $161 million for 2015. The effective tax rate from continuing operations was 399.4% and on an Adjusted basis was 82.6%.
• Loss from continuing operations, net of tax was $93 million, or a loss of $0.25 per diluted share, compared with a loss of $797 million, or a loss of $1.81 per diluted share, for 2015. Adjusted income from continuing operations, net of tax was $35 million, or $0.04 per diluted share, compared with income of $7 million, or $0.01 per diluted share, for 2015. Earnings allocated to convertible preferred stock had a negative $0.04 impact on both Diluted earnings per share and Adjusted diluted earnings per share. The impact of the devaluation in Egypt on working capital balances had a negative $0.04 impact on both Diluted earnings per share and Adjusted diluted earnings per share.
• Loss from discontinued operations, net of tax was $14 million associated with the previously separated North America business, or $0.03 per diluted share, compared with a loss of $349 million, or $0.79 per diluted share, for 2015, which included $340 million associated with the estimated loss on the sale of the North America business.
• Foreign currency has impacted the Company's financial results of continuing operations as shown in the table on the following page.