FORM 8-K |
Avon Products, Inc. | ||||
(Exact name of registrant as specified in charter) | ||||
New York | 1-4881 | 13-0544597 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
AVON PRODUCTS, INC. | |||||||||||||||
(Registrant) | |||||||||||||||
By | /s/ Robert Loughran | ||||||||||||||
Name: Robert Loughran | |||||||||||||||
Title: Group Vice President and Chief Accounting Officer |
Exhibit | ||
No. | Description | |
99.1 | Press Release of Avon Products, Inc. dated May 4, 2017 | |
Avon Reports First-Quarter 2017 Results |
• | Revenue increased 2% to $1.3 Billion; Decreased 1% in constant dollars1 |
• | Active Representatives and Ending Representatives, both from Reportable Segments, declined 3% and 1%, respectively |
• | Operating Margin increased 160 bps to 2.2%; Adjusted1 Operating Margin decreased 130 bps to 2.9% |
• | Diluted Loss Per Share From Continuing Operations of $0.10; Adjusted Diluted Loss Per Share From Continuing Operations of $0.07 |
• | Foreign currency favorably impacted both Diluted Loss Per Share and Adjusted Diluted Loss Per Share by an estimated $0.03 per share |
• | The Company is on track to achieve its 2017 cost savings target of $230 million |
• | As part of its Transformation Plan, the Company completed the implementation of a new Representative-facing system in Brazil |
• | Total revenue for Avon Products, Inc. increased 2% to $1.3 billion, but decreased 1% in constant dollars. |
• | From reportable segments: |
◦ | Total revenue increased 3% to $1.3 billion, but decreased 1% in constant dollars. |
◦ | Active Representatives declined 3% with decreases in all segments except North Latin America, which was relatively unchanged. |
◦ | Average order increased 2% with growth in all segments except Europe, Middle East & Africa, which declined. |
◦ | Ending Representatives declined 1% primarily due to a decline in Asia Pacific. |
• | Gross margin and Adjusted gross margin both increased 90 basis points to 61.2%, primarily due to the favorable net impact of price/mix. |
• | Operating margin was 2.2% in the quarter, up 160 basis points, while Adjusted operating margin was 2.9%, down 130 basis points. The operating margin comparison benefited from lower costs to implement 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, an out-of-period adjustment related to equity compensation and higher transportation costs. These factors were partially offset by the favorable net impact of price/mix and by approximately 60 basis points of benefit from foreign exchange. |
• | The provision for income taxes was $30 million, compared with a benefit from income taxes of $2 million for the first quarter of 2016. On an Adjusted basis, the provision for income taxes was $31 million, compared with $37 million for the first quarter of 2016. The effective tax rate and Adjusted effective tax rate, both from continuing operations, were not meaningful in the quarter. These rates were negatively impacted by the country mix of earnings and the inability to recognize additional deferred tax assets in various jurisdictions, including the impact caused by the recognition of withholding taxes associated with the repatriation of cash to the U.S. |
• | Loss from continuing operations, net of tax was $37 million, or a loss of $0.10 per diluted share, compared with a loss of $156 million, or a loss of $0.36 per diluted share, for the first quarter of 2016. Adjusted loss from continuing operations, net of tax was $28 million, or a loss of $0.07 per diluted share, compared with loss of $27 million, or a loss of $0.07 per diluted share, for the first 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. |
• | Loss from discontinued operations, net of tax in the prior year of $10 million, or a loss of $0.02 per diluted share, was associated with the previously separated North America business. |
THREE MONTHS ENDED MARCH 31, 2017 | ||||||||||||||||||||||||
SEGMENT RESULTS | ||||||||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||
Revenue | Active Representatives | Average Order C$ | Units Sold | Price/ Mix C$ | Ending Representatives | |||||||||||||||||||
US$ | C$ | |||||||||||||||||||||||
Revenue & Drivers | % var. vs 1Q16 | % var. vs 1Q16 | % var. vs 1Q16 | % var. vs 1Q16 | % var. vs 1Q16 | % var. vs 1Q16 | % var. vs 1Q16 | |||||||||||||||||
Europe, Middle East & Africa | $ | 507.5 | (2 | )% | (4 | )% | (3 | )% | (1 | )% | (13 | )% | 9 | % | (1 | )% | ||||||||
South Latin America | 499.2 | 17 | 2 | (2 | ) | 4 | (1 | ) | 3 | 1 | ||||||||||||||
North Latin America | 193.2 | (6 | ) | 2 | — | 2 | (1 | ) | 3 | — | ||||||||||||||
Asia Pacific | 124.2 | (8 | ) | (5 | ) | (8 | ) | 3 | (3 | ) | (2 | ) | (8 | ) | ||||||||||
Total from reportable segments | 1,324.1 | 3 | (1 | ) | (3 | ) | 2 | (6 | ) | 5 | (1 | ) | ||||||||||||
Other operating segments and business activities | 9.0 | (56 | ) | (20 | ) | (100 | ) | * | * | * | (100 | ) | ||||||||||||
Total revenue | $ | 1,333.1 | 2 | % | (1 | )% | (4 | )% | 3 | % | (7 | )% | 6 | % | (2 | )% |
Operating Profit/Margin | 2017 Operating Profit US$ | 2017 Operating Margin US$ | Change in US$ vs 1Q16 | Change in C$ vs 1Q16 | |||||||
Segment profit/margin | |||||||||||
Europe, Middle East & Africa | $ | 74.6 | 14.7 | % | 150 bps | 130 bps | |||||
South Latin America | 13.3 | 2.7 | (270) | (250) | |||||||
North Latin America | 21.0 | 10.9 | (300) | (290) | |||||||
Asia Pacific | 12.9 | 10.4 | (60) | (20) | |||||||
Total from reportable segments | 121.8 | 9.2 | (130) | (100) | |||||||
Other operating segments and business activities | 1.2 | ||||||||||
Unallocated global expenses | (84.3 | ) | |||||||||
CTI restructuring initiatives | (10.0 | ) | |||||||||
Operating profit | $ | 28.7 | 2.2 | % | 160 bps | 170 bps | |||||
• | Europe, Middle East & Africa revenue was down 2%, or 4% in constant dollars, impacted by declines in Active Representatives and average order. |
◦ | Russia revenue was up 13%, or down 10% in constant dollars, driven by declines in Active Representatives and average order. |
◦ | U.K. revenue was down 18%, or 6% in constant dollars, due to declines in Active Representatives and average order. |
• | South Latin America revenue was up 17%, or 2% in constant dollars, driven primarily by higher average order, partially offset by a decrease in Active Representatives. |
◦ | Brazil revenue was up 26%, or 2% in constant dollars, primarily driven by higher average order, partially offset by a decrease in Active Representatives. |
• | North Latin America revenue was down 6%, or up 2% in constant dollars, benefiting from higher average order. |
◦ | Mexico revenue was down 10%, or up 1% in constant dollars, primarily driven by higher average order, partially offset by a decline in Active Representatives. |
• | Asia Pacific revenue was down 8%, or 5% in constant dollars. Modest constant-dollar growth in the Philippines was not enough to offset declines in most other markets. The segment's constant-dollar revenue decline was driven by a decrease in Active Representatives, partially offset by higher average order. |
◦ | Philippines revenue was down 4%, or up 2% in constant dollars, as higher average order was partially offset by a decline in Active Representatives. |
• | Net cash used by operating activities of continuing operations was $80 million for the three months ended March 31, 2017, compared with $191 million in the same period in 2016. The approximate $111 million decrease to net cash used by continuing operating activities was primarily due to lower inventory, the 2016 contribution to the U.S. pension plan of $20 million and Industrial Production Tax ("IPI") payments made in Brazil in 2016 that did not recur in 2017 (based on the favorable outcome received in May 2016 related to the injunction on cash deposits for IPI taxes). |
• | Net cash used by investing activities of continuing operations was $22 million for the three months ended March 31, 2017, compared with $25 million in the same period in 2016. |
• | Net cash used by financing activities of continuing operations was $5 million for the three months ended March 31, 2017, as compared to net cash provided of $436 million in the same period in 2016. The $441 million decrease was primarily due to the net proceeds related to the issuance of Series C Preferred Stock received in the prior year. |
Contacts: | |
INVESTORS: | MEDIA: |
Avon Investor Relations | Brunswick Group |
Gina Grant | Mathilde Milch |
or | (212) 333-3810 |
ICR, Inc. | |
Allison Malkin/Caitlin Morahan | |
(203) 682-8200 |
Three Months Ended | Percent | ||||||||||
March 31 | Change | ||||||||||
2017 | 2016 | ||||||||||
Net sales | $ | 1,298.1 | $ | 1,280.0 | 1 | % | |||||
Other revenue | 35.0 | 26.5 | |||||||||
Total revenue | 1,333.1 | 1,306.5 | 2 | % | |||||||
Cost of sales | 517.1 | 518.8 | |||||||||
Selling, general and administrative expenses | 787.3 | 779.9 | |||||||||
Operating profit | 28.7 | 7.8 | * | ||||||||
Interest expense | 35.1 | 32.7 | |||||||||
Interest income | (4.7 | ) | (4.0 | ) | |||||||
Other expense, net | 5.0 | 137.2 | |||||||||
Total other expenses | 35.4 | 165.9 | |||||||||
Loss from continuing operations, before taxes | (6.7 | ) | (158.1 | ) | 96 | % | |||||
Income taxes | (29.8 | ) | 2.3 | ||||||||
Loss from continuing operations, net of tax | (36.5 | ) | (155.8 | ) | 77 | % | |||||
Loss from discontinued operations, net of tax | — | (9.6 | ) | ||||||||
Net loss | (36.5 | ) | (165.4 | ) | |||||||
Net income attributable to noncontrolling interests | — | (0.5 | ) | ||||||||
Net loss attributable to Avon | $ | (36.5 | ) | $ | (165.9 | ) | 78 | % | |||
Loss per share:(1) | |||||||||||
Basic | |||||||||||
Basic EPS from continuing operations | $ | (0.10 | ) | $ | (0.36 | ) | 72 | % | |||
Basic EPS from discontinued operations | — | (0.02 | ) | ||||||||
Basic EPS attributable to Avon | $ | (0.10 | ) | $ | (0.38 | ) | 74 | % | |||
Diluted | |||||||||||
Diluted EPS from continuing operations | $ | (0.10 | ) | $ | (0.36 | ) | 72 | % | |||
Diluted EPS from discontinued operations | — | (0.02 | ) | ||||||||
Diluted EPS attributable to Avon | $ | (0.10 | ) | $ | (0.38 | ) | 74 | % | |||
Weighted-average shares outstanding: | |||||||||||
Basic | 438.6 | 435.9 | |||||||||
Diluted | 438.6 | 435.9 | |||||||||
* Calculation not meaningful | |||||||||||
(1) Under the two-class method, loss per share is calculated using net loss allocable to common shares, which is derived by reducing net loss by the loss allocable to participating securities and earnings allocated to convertible preferred stock. Net loss allocable to common shares used in the basic and diluted loss per share calculation was ($41.7) and ($165.7) for the three months ended March 31, 2017 and 2016, respectively. |
March 31 | December 31 | |||||||
2017 | 2016 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 560.0 | $ | 654.4 | ||||
Accounts receivable, net | 457.0 | 458.9 | ||||||
Inventories | 630.4 | 586.4 | ||||||
Prepaid expenses and other | 300.2 | 291.3 | ||||||
Current assets of discontinued operations | 1.3 | 1.3 | ||||||
Total current assets | 1,948.9 | 1,992.3 | ||||||
Property, plant and equipment, at cost | 1,488.9 | 1,424.1 | ||||||
Less accumulated depreciation | (756.0 | ) | (712.8 | ) | ||||
Property, plant and equipment, net | 732.9 | 711.3 | ||||||
Goodwill | 97.1 | 93.6 | ||||||
Other assets | 647.3 | 621.7 | ||||||
Total assets | $ | 3,426.2 | $ | 3,418.9 | ||||
Liabilities, Series C Convertible Preferred Stock and Shareholders’ Deficit | ||||||||
Current Liabilities | ||||||||
Debt maturing within one year | $ | 20.1 | $ | 18.1 | ||||
Accounts payable | 754.3 | 768.1 | ||||||
Accrued compensation | 129.4 | 129.2 | ||||||
Other accrued liabilities | 362.0 | 401.9 | ||||||
Sales and taxes other than income | 158.7 | 147.0 | ||||||
Income taxes | 19.1 | 10.7 | ||||||
Current liabilities of discontinued operations | 7.3 | 10.7 | ||||||
Total current liabilities | 1,450.9 | 1,485.7 | ||||||
Long-term debt | 1,874.9 | 1,875.8 | ||||||
Employee benefit plans | 167.9 | 164.5 | ||||||
Long-term income taxes | 76.9 | 78.6 | ||||||
Other liabilities | 213.8 | 205.8 | ||||||
Total liabilities | 3,784.4 | 3,810.4 | ||||||
Series C convertible preferred stock | 450.4 | 444.7 | ||||||
Shareholders’ Deficit | ||||||||
Common stock | 189.5 | 188.8 | ||||||
Additional paid-in capital | 2,283.0 | 2,273.9 | ||||||
Retained earnings | 2,280.0 | 2,322.2 | ||||||
Accumulated other comprehensive loss | (967.1 | ) | (1,033.2 | ) | ||||
Treasury stock, at cost | (4,605.9 | ) | (4,599.7 | ) | ||||
Total Avon shareholders’ deficit | (820.5 | ) | (848.0 | ) | ||||
Noncontrolling interests | 11.9 | 11.8 | ||||||
Total shareholders’ deficit | (808.6 | ) | (836.2 | ) | ||||
Total liabilities, series C convertible preferred stock and shareholders’ deficit | $ | 3,426.2 | $ | 3,418.9 | ||||
Three Months Ended | ||||||||
March 31 | ||||||||
2017 | 2016 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (36.5 | ) | $ | (165.4 | ) | ||
Loss from discontinued operations, net of tax | — | 9.6 | ||||||
Loss from continuing operations, net of tax | $ | (36.5 | ) | $ | (155.8 | ) | ||
Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
Depreciation | 20.5 | 20.5 | ||||||
Amortization | 7.1 | 7.1 | ||||||
Provision for doubtful accounts | 60.8 | 37.0 | ||||||
Provision for obsolescence | 10.2 | 12.6 | ||||||
Share-based compensation | 9.7 | 6.2 | ||||||
Foreign exchange (gains) losses | (0.9 | ) | 1.7 | |||||
Deferred income taxes | 12.3 | (13.5 | ) | |||||
Loss on deconsolidation of Venezuela | — | 120.5 | ||||||
Other | 6.0 | 2.2 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (42.3 | ) | (21.4 | ) | ||||
Inventories | (23.5 | ) | (80.5 | ) | ||||
Prepaid expenses and other | 10.0 | (14.2 | ) | |||||
Accounts payable and accrued liabilities | (107.3 | ) | (61.8 | ) | ||||
Income and other taxes | 1.7 | 8.0 | ||||||
Noncurrent assets and liabilities | (8.0 | ) | (59.9 | ) | ||||
Net cash used by operating activities of continuing operations | (80.2 | ) | (191.3 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Capital expenditures | (23.9 | ) | (23.7 | ) | ||||
Disposal of assets | 1.6 | 1.3 | ||||||
Reduction of cash due to Venezuela deconsolidation | — | (4.5 | ) | |||||
Other investing activities | — | 1.6 | ||||||
Net cash used by investing activities of continuing operations | (22.3 | ) | (25.3 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Debt, net (maturities of three months or less) | 1.9 | 3.7 | ||||||
Proceeds from debt | — | 8.6 | ||||||
Repayment of debt | (1.0 | ) | (1.0 | ) | ||||
Repurchase of common stock | (6.2 | ) | (3.5 | ) | ||||
Net proceeds from the sale of series C convertible preferred stock | — | 428.1 | ||||||
Net cash (used) provided by financing activities of continuing operations | (5.3 | ) | 435.9 | |||||
Cash Flows from Discontinued Operations | ||||||||
Net cash used by operating activities of discontinued operations | (3.5 | ) | (44.9 | ) | ||||
Net cash used by investing activities of discontinued operations | — | (96.7 | ) | |||||
Net cash used by discontinued operations | (3.5 | ) | (141.6 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 16.9 | (8.9 | ) | |||||
Net (decrease) increase in cash and cash equivalents | (94.4 | ) | 68.8 | |||||
Cash and cash equivalents at beginning of year(1) | 654.4 | 684.7 | ||||||
Cash and cash equivalents at end of period | $ | 560.0 | $ | 753.5 |
(1) | Includes cash and cash equivalents of discontinued operations of $(2.2) at the beginning of the year in 2016. |
CATEGORY SALES FROM REPORTABLE SEGMENTS (US$) | ||||||||||||
Consolidated | ||||||||||||
Three Months Ended March 31 | US$ | C$ | ||||||||||
2017 | 2016 | % var. vs 1Q16 | % var. vs 1Q16 | |||||||||
Beauty: | ||||||||||||
Skincare | $ | 385.1 | $ | 362.0 | 6% | 1% | ||||||
Fragrance | 343.3 | 331.2 | 4 | — | ||||||||
Color | 241.7 | 245.7 | (2) | (6) | ||||||||
Total Beauty | 970.1 | 938.9 | 3 | (1) | ||||||||
Fashion & Home: | ||||||||||||
Fashion (jewelry/watches/apparel/footwear/accessories/children's) | 193.8 | 196.3 | (1) | (4) | ||||||||
Home (gift & decorative products/housewares/entertainment & leisure/children's/nutrition) | 134.1 | 129.2 | 4 | 1 | ||||||||
Total Fashion & Home | 327.9 | 325.5 | 1 | (2) | ||||||||
Net sales from reportable segments | 1,298.0 | 1,264.4 | 3 | (1) | ||||||||
Other revenue from reportable segments | 26.1 | 21.7 | 20 | 16 | ||||||||
Total revenue from reportable segments | 1,324.1 | 1,286.1 | 3 | (1) | ||||||||
Total revenue from Other operating segments and business activities | 9.0 | 20.4 | (56) | (20) | ||||||||
Total revenue | $ | 1,333.1 | $ | 1,306.5 | 2 | (1) | ||||||
THREE MONTHS ENDED MARCH 31, 2017 | ||||||||||||
Reported (GAAP) | CTI restructuring initiatives | Adjusted (Non-GAAP) | ||||||||||
Total revenue | $ | 1,333.1 | $ | — | $ | 1,333.1 | ||||||
Cost of sales | 517.1 | (0.1 | ) | 517.2 | ||||||||
Selling, general and administrative expenses | 787.3 | 10.1 | 777.2 | |||||||||
Operating profit | 28.7 | 10.0 | 38.7 | |||||||||
(Loss) income from continuing operations, before taxes | (6.7 | ) | 10.0 | 3.3 | ||||||||
Income taxes | (29.8 | ) | (1.0 | ) | (30.8 | ) | ||||||
Loss from continuing operations, net of tax | $ | (36.5 | ) | $ | 9.0 | $ | (27.5 | ) | ||||
Diluted EPS from continuing operations | $ | (0.10 | ) | $ | (0.07 | ) | ||||||
Gross margin | 61.2 | % | — | 61.2 | % | |||||||
SG&A as a % of revenues | 59.1 | % | (0.8 | ) | 58.3 | % | ||||||
Operating margin | 2.2 | % | 0.8 | 2.9 | % | |||||||
Effective tax rate | * | * | ||||||||||
THREE MONTHS ENDED MARCH 31, 2016 | ||||||||||||||||||||
Reported (GAAP) | CTI restructuring initiatives | Venezuelan special items | Special tax items | Adjusted (Non-GAAP) | ||||||||||||||||
Total revenue | $ | 1,306.5 | $ | — | $ | — | $ | — | $ | 1,306.5 | ||||||||||
Cost of sales | 518.8 | — | — | — | 518.8 | |||||||||||||||
Selling, general and administrative expenses | 779.9 | 46.8 | — | — | 733.1 | |||||||||||||||
Operating profit | 7.8 | 46.8 | — | — | 54.6 | |||||||||||||||
(Loss) income from continuing operations, before taxes | (158.1 | ) | 46.8 | 120.5 | — | 9.2 | ||||||||||||||
Income taxes | 2.3 | (9.5 | ) | — | (29.3 | ) | (36.5 | ) | ||||||||||||
Loss from continuing operations, net of tax | $ | (155.8 | ) | $ | 37.3 | $ | 120.5 | $ | (29.3 | ) | $ | (27.3 | ) | |||||||
Diluted EPS from continuing operations | $ | (0.36 | ) | $ | (0.07 | ) | ||||||||||||||
Gross margin | 60.3 | % | — | — | — | 60.3 | % | |||||||||||||
SG&A as a % of revenues | 59.7 | % | (3.6 | ) | — | — | 56.1 | % | ||||||||||||
Operating margin | 0.6 | % | 3.6 | — | — | 4.2 | % | |||||||||||||
Effective tax rate | (1.5 | )% | * | |||||||||||||||||
Approximate Impact of Foreign Currency | ||||||||
First-Quarter 2017 | ||||||||
Year-on-Year impact on Reported (GAAP) and Adjusted (Non-GAAP) results: | Estimated impact ($ in millions) | Estimated impact on diluted EPS | ||||||
Total revenue | 3 pts | |||||||
Operating profit - transaction | $ | 5 | $ | — | ||||
Operating profit - translation | 5 | 0.01 | ||||||
Total operating profit | $ | 10 | $ | 0.01 | ||||
Operating margin | 60 bps | |||||||
Revaluation of working capital | $ | 14 | $ | 0.02 | ||||
Diluted EPS | $ | 0.03 | ||||||
Amounts in the table above may not necessarily sum because the computations are made independently. |
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