Avon Reports Third-Quarter 2017 Results

LONDON, Nov. 2, 2017

"Our third quarter has been a productive period. While we saw mixed results, I am encouraged by the revenue improvement in many of our top 15 markets and the underlying business trends we are beginning to see. Our innovation pipeline is starting to gain traction and we are close to realizing our annual cost reduction milestone. We remain intensely focused on improving our Representative experience, which results in higher engagement and her success," said Sheri McCoy, Chief Executive Officer, Avon Products, Inc.

Sheri McCoy went on to say, "It will take time to fully realize the benefits from our near and long-term initiatives in this highly competitive market, but with the right team in place we are poised to accelerate the pace of our progress."

Commenting on behalf of the Board, Chan Galbato, non-executive Chairman of Avon Products' Board of Directors said, "The search for a new Chief Executive Officer for Avon is underway. The Board is pleased with the progress and the strong interest we are receiving."

Highlights for Third Quarter of 2017:

• Revenue increased 1% to $1.4 Billion; Relatively unchanged in constant dollars¹
• Active Representatives and Ending Representatives, both from Reportable Segments, declined 3% and 2%, respectively
• Operating Margin decreased 210 bps to 5.9%; Adjusted¹ Operating Margin decreased 70 bps to 6.3%, both negatively impacted by higher bad debt and Representative, sales leader and field expense
• Diluted Earnings Per Share From Continuing Operations of $0.01; Adjusted Diluted Earnings Per Share From Continuing Operations of $0.03
• Within approximately $25 million of our annual cost savings target of $230m and on track to meet three-year goal
• Modest improvement in trends expected to continue in fourth quarter but results will fall below full year guidance

Third-Quarter 2017 Income Statement Review (compared with third-quarter 2016)

• Total revenue for Avon Products, Inc. increased 1% to $1.4 billion and was relatively unchanged in constant dollars.

• From reportable segments:
• Total revenue increased 1% to $1.4 billion and was relatively unchanged in constant dollars.
• Active Representatives declined 3% with decreases in South Latin America and Europe, Middle East & Africa partially offset by an increase in North Latin America.
• Average order increased 3% with growth in South Latin America, Asia Pacific and North Latin America.
• Ending Representatives declined 2% with decreases in South Latin America and Asia Pacific partially offset by increases in Europe, Middle East & Africa and North Latin America.

• Gross margin and Adjusted gross margin each increased 30 basis points to 61.2%, primarily due to the favorable net impact of price/mix.

• Operating margin was 5.9% in the quarter, down 210 basis points, while Adjusted operating margin was 6.3%, down 70 basis points. The operating margin comparison was unfavorably impacted by proceeds recognized in the third quarter of 2016 as a result of a legal settlement, partially offset by lower costs to implement ("CTI") restructuring in the current year. Both the operating margin and Adjusted operating margin year-over-year comparisons were negatively impacted by higher bad debt expense, primarily in Brazil, and higher Representative, sales leader and field expense, also primarily in Brazil. These factors were partially offset by lower incentive compensation plan expenses and lower fixed expenses, including the benefit of cost reductions associated with the Transformation Plan.

• The provision for income taxes was $36 million, compared with $38 million for the third quarter of 2016. On an Adjusted basis, the provision for income taxes was $36 million, compared with $42 million for the third quarter of 2016.

• Income from continuing operations, net of tax was $12 million, or $0.01 per diluted share, compared with $36 million, or $0.07 per diluted share, for the third quarter of 2016. Adjusted income from continuing operations, net of tax was $18 million, or $0.03 per diluted share, compared with $16 million, or $0.02 per diluted share, for the third quarter of 2016. Earnings allocated to convertible preferred stock had a negative $0.02 impact on Diluted earnings per share and a negative $0.01 impact on Adjusted diluted earnings per share in the third quarter of 2017, compared with a negative $0.01 impact on Diluted earnings per share and a negative $0.02 impact on Adjusted diluted earnings per share in the third quarter of 2016.

• Loss from discontinued operations, net of tax in the third quarter of the prior year of $1 million, or $0.00 per diluted share, was associated with the previously separated North America business.

Adjustments to Third-Quarter 2017 GAAP Results to Arrive at Adjusted Results