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/ Laura Barbrook | ||||||||||||||
Name: Laura Barbrook | |||||||||||||||
Title: Vice President and Corporate Controller - Principal Accounting Officer |
Exhibit | ||
No. | Description | |
99.1 | Press Release of Avon Products, Inc. dated November 1, 2018 | |
Avon Reports Third-Quarter 2018 Results |
• | Total Reportable Segment Revenue in reported currency increased 1% to $1.4 billion. Adjusted1 Total Reportable Segment Revenue in constant dollars1 decreased 4% on a like-for-like1 basis |
• | Gross Margin of 62.2%. Adjusted Gross Margin increased 10 basis points to 61.3% on a like-for-like basis, favorably impacted by the net impact of price and mix |
• | Active Representatives and Ending Representatives, both from Reportable Segments, declined 5% and 6%, respectively |
• | Operating Margin increased 690 bps to 13.1%. Adjusted Operating Margin decreased 280 bps to 3.8% on a like-for-like basis, reflecting key investments in field, advertising and brochure |
• | Diluted Earnings Per Share of $0.21. Adjusted Diluted Earnings Per Share of $0.02 on a like-for-like basis |
• | Foreign currency unfavorably impacted Diluted Earnings Per Share by an estimated $0.12 per share and Adjusted Diluted Earnings Per Share by an estimated $0.04 per share, driven by the strength of the U.S. dollar against the currencies of the countries in which the Company operates |
• | Structural and operational changes resulted in continued improvement in the Effective Tax Rate, on track to deliver a 15% reduction in the annualized Adjusted Effective Tax Rate to 65% |
THREE MONTHS ENDED SEPTEMBER 30, 2018 | |||||||||||||
Reported (GAAP) | Adjusted1 (Non-GAAP) | Like-for-Like1 | |||||||||||
Total C$ Reportable Segment Revenue Growth (vs 3Q17) | 16 | % | — | % | (4 | )% | |||||||
Gross Margin | 62.2 | % | 57.1 | % | 61.3 | % | |||||||
Operating Margin | 13.1 | % | 3.0 | % | 3.8 | % | |||||||
Diluted EPS | $ | 0.21 | $ | — | $ | 0.02 | |||||||
Effective Tax Rate | 37.5 | % | 9.7 | % | 9.2 | % |
• | Total revenue for Avon Products, Inc. was relatively unchanged at $1.4 billion. Excluding the Brazil IPI tax release, total revenue decreased 11% to $1.3 billion, or 1% in constant dollars, both including a benefit of approximately 3% due to the impact of adopting the new revenue recognition standard. |
• | From reportable segments: |
◦ | Total revenue increased 1% to $1.4 billion. Excluding the Brazil IPI tax release, total revenue decreased 11% to $1.2 billion, including a benefit of approximately 3% due to the impact of adopting the new revenue recognition standard, or was relatively unchanged in constant dollars, including a benefit of approximately 4% due to the impact of adopting the new revenue recognition standard. |
◦ | Active Representatives declined 5% with decreases reported in all segments. |
◦ | Ending Representatives declined 6% with decreases reported in all segments. |
◦ | Average order in constant dollars increased 5%, including a benefit of approximately 4% due to the impact of adopting the new revenue recognition standard, driven by increases in South Latin America, North Latin America and Asia Pacific. |
• | Gross margin increased 100 basis points to 62.2%, significantly impacted by the Brazil IPI tax release. Adjusted gross margin decreased 410 basis points to 57.1%. Both Gross margin and Adjusted gross margin include a decline of approximately 420 basis points due to the impact of adopting the new revenue recognition standard. Gross margin and Adjusted gross margin were favorably impacted by the net impact of price/mix, partially offset by higher supply chain costs. |
• | Operating margin was 13.1% in the quarter, up 690 basis points, significantly impacted by the Brazil IPI tax release. Adjusted operating margin was 3.0%, down 360 basis points. Both Operating margin and Adjusted operating margin include a decline of approximately 80 basis points due to the implementation of the new revenue recognition standard. Both the Operating |
• | The provision for income taxes was $68 million, significantly impacted by the Brazil IPI tax release, compared with $36 million for third-quarter 2017. On an Adjusted basis, the provision for income taxes was $1 million, compared with $36 million for third-quarter 2017. |
• | Net income was $114 million, or $0.21 per diluted share, compared with $12 million, or $0.01 per diluted share for third-quarter 2017. Adjusted net income was $7 million, or $0.00 per diluted share, compared with $18 million, or $0.03 per diluted share for third-quarter 2017. Both net income and Adjusted net income include an unfavorable impact of $0.02 per diluted share due to the impact of the new revenue recognition standard. |
• | The Company released the liability accrued to date related to Brazil IPI taxes of approximately $195 million before tax ($129 million after tax). |
• | The Company recorded costs to implement ("CTI") restructuring within operating profit of approximately $20 million before tax ($18 million after tax), related to both the new cost savings initiative announced last month and to the Transformation Plan. |
• | The Company recorded one-time tax reserves of approximately $4 million associated with its uncertain tax positions. |
SEGMENT RESULTS | |||||||||||||||||||||||||||||||
($ in millions) | |||||||||||||||||||||||||||||||
Revenue | Active Representatives | Average Order C$ | Units Sold | Price/ Mix C$ | Ending Representatives | ||||||||||||||||||||||||||
US$ | US$ | C$ | |||||||||||||||||||||||||||||
Revenue & Drivers | Reported (GAAP) | % var. vs 3Q17 | Adjusted (non-GAAP) | % var. vs 3Q17 | % var. vs 3Q17 | % var. vs 3Q17 | % var. vs 3Q17 | % var. vs 3Q17 | % var. vs 3Q17 | % var. vs 3Q17 | |||||||||||||||||||||
Europe, Middle East & Africa | $ | 442.9 | (8 | )% | $ | 442.9 | (8 | )% | (3 | )% | (4 | )% | 1 | % | (7 | )% | 4 | % | (5 | )% | |||||||||||
South Latin America | 645.4 | 9 | 477.0 | (19 | ) | — | (7 | ) | 7 | (10 | ) | 10 | (7 | ) | |||||||||||||||||
North Latin America | 207.0 | — | 207.0 | — | 5 | (3 | ) | 8 | 4 | 1 | (9 | ) | |||||||||||||||||||
Asia Pacific | 120.5 | 2 | 120.5 | 2 | 6 | (2 | ) | 8 | 6 | — | (2 | ) | |||||||||||||||||||
Total from reportable segments | 1,415.8 | 1 | 1,247.4 | (11 | ) | — | (5 | ) | 5 | (6 | ) | 6 | (6 | ) | |||||||||||||||||
Other operating segments and business activities | 8.4 | (60 | ) | 8.4 | (60 | ) | (60 | ) | * | * | * | * | * | ||||||||||||||||||
Total Avon | $ | 1,424.2 | — | % | $ | 1,255.8 | (11 | )% | (1 | )% | (5 | )% | 4 | % | (6 | )% | 5 | % | (6 | )% |
Operating Profit/Margin | 2018 Operating Profit US$ | 2018 Operating Margin US$ | 2018 Adjusted Operating Profit US$ | 2018 Adjusted Operating Margin US$ | Change in US$ vs 3Q17 | Change in C$ vs 3Q17 | ||||||||||
Segment profit/margin | ||||||||||||||||
Europe, Middle East & Africa | $ | 46.1 | 10.4% | $ | 46.1 | 10.4% | (370) bps | (370) bps | ||||||||
South Latin America | 194.1 | 30.1 | 25.7 | 5.4 | (590) | (510) | ||||||||||
North Latin America | 14.3 | 6.9 | 14.3 | 6.9 | (160) | (190) | ||||||||||
Asia Pacific | 9.6 | 8.0 | 9.6 | 8.0 | (360) | (330) | ||||||||||
Total from reportable segments | 264.1 | 18.7 | 95.7 | 7.7 | (420) | (400) | ||||||||||
Other operating segments and business activities | 1.1 | 1.1 | ||||||||||||||
Unallocated global expenses | (58.5 | ) | (58.5 | ) | ||||||||||||
CTI restructuring initiatives | (19.8 | ) | ||||||||||||||
Total Avon | $ | 186.9 | 13.1% | $ | 38.3 | 3.0% | (360) bps | (290) bps | ||||||||
• | Europe, Middle East & Africa revenue was down 8%, or 3% in constant dollars, both including a benefit of approximately 2% due to the impact of adopting the new revenue recognition standard. Revenue and constant-dollar revenue were impacted by a decrease in Active Representatives and lower average order. |
◦ | Russia revenue was down 16%, or 7% in constant dollars, both including a benefit of approximately 2% due to the impact of adopting the new revenue recognition standard. Revenue and constant-dollar revenue were impacted by a decrease in Active Representatives. |
◦ | U.K. revenue and constant-dollar revenue were down 5%, both including a benefit of approximately 5% due to the impact of adopting the new revenue recognition standard. Revenue and constant-dollar revenue were impacted by a decrease in Active Representatives, partially offset by higher average order. |
• | South Latin America revenue was up 9%, significantly impacted by an IPI tax reversal in Brazil. Excluding the IPI reversal in Brazil, South Latin America revenue was down 19%, or relatively unchanged in constant dollars, both including a benefit of approximately 5% due to the impact of adopting the new revenue recognition standard. Revenue and constant-dollar revenue were impacted by a decrease in Active Representatives, partially offset by higher average order. Revenue and constant-dollar revenue were primarily impacted by a decline in Brazil, partially offset by growth in Argentina, driven by inflationary pricing. |
◦ | Brazil revenue was up 27%, significantly impacted by the IPI tax reversal. Excluding the IPI reversal, Brazil revenue was down 23%, or 5% in constant dollars, both including a benefit of approximately 7% due to the impact of adopting the new revenue recognition standard. Revenue and constant-dollar revenue were impacted by a decrease in Active Representatives, as well as lower average order. |
• | North Latin America revenue was relatively unchanged, or up 5% in constant dollars, both including a benefit of approximately 3% due to the impact of adopting the new revenue recognition standard. Revenue and constant-dollar revenue were impacted by higher average order, partially offset by a decrease in Active Representatives. |
◦ | Mexico revenue was up 3%, or 10% in constant dollars, both including a benefit of approximately 3% due to the impact of adopting the new revenue recognition standard. Revenue and constant-dollar revenue were impacted by higher average order, partially offset by a decrease in Active Representatives. |
• | Asia Pacific revenue was up 2%, or 6% in constant dollars, both including a benefit of approximately 2% due to the impact of adopting the new revenue recognition standard. Revenue and constant-dollar revenue were impacted by higher average order, partially offset by a decrease in Active Representatives. |
◦ | Philippines revenue was up 1%, or 7% in constant dollars, both including a benefit of approximately 3% due to the impact of adopting the new revenue recognition standard. Revenue and constant-dollar revenue were impacted by higher average order, partially offset by a decrease in Active Representatives. |
• | Net cash provided by operating activities of continuing operations was $32 million for the three months ended September 30, 2018. This reduced net cash used by operating activities of continuing operations to $68 million for the nine months ended September 30, 2018, compared with net cash provided by operating activities of continuing operations of $35 million in the same period in 2017. The approximate $103 million increased use of net cash from continuing operating activities was primarily due to higher inventory purchases, lower cash-related earnings, and a timing difference of approximately $34 million related to refundable indirect taxes, partially offset by the judicial deposit receipt of approximately $68 million related to Brazil IPI taxes and lower net receivables. |
• | Net cash used by investing activities of continuing operations was $72 million for the nine months ended September 30, 2018, compared with $42 million in the same period in 2017. The approximate $30 million increased use of net cash from continuing investing activities was primarily due to a $22 million cash distribution received from New Avon LLC in the third quarter of 2017 and higher capital expenditures in 2018. |
• | Net cash used by financing activities of continuing operations was $255 million for the nine months ended September 30, 2018, compared with $10 million in the same period in 2017. The approximate $245 million increased use of net cash from continuing financing activities was primarily due to the prepayment of the Company's 6.5% Notes in the second quarter of 2018. |
Contacts: | |
INVESTORS: | MEDIA: |
Amy Greene | Chris Wermann |
Avon Investor Relations | Avon Corporate Relations |
(212) 282-5320 | or |
James Golden/Leigh Parrish/Sophie Throsby | |
Joele Frank, Wilkinson Brimmer Katcher | |
(212) 355-4449 |
Three Months Ended | Percent Change | Nine Months Ended | Percent Change | |||||||||||||||||
September 30 | September 30 | |||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||
Net sales | $ | 1,346.3 | $ | 1,378.2 | (2)% | $ | 3,924.7 | $ | 4,029.8 | (3)% | ||||||||||
Other revenue | 77.9 | 39.6 | 244.9 | 117.0 | ||||||||||||||||
Total revenue | 1,424.2 | 1,417.8 | —% | 4,169.6 | 4,146.8 | 1% | ||||||||||||||
Cost of sales | 538.4 | 550.0 | 1,657.8 | 1,592.1 | ||||||||||||||||
Selling, general and administrative expenses | 698.9 | 780.5 | 2,227.0 | 2,404.9 | ||||||||||||||||
Operating profit | 186.9 | 87.3 | * | 284.8 | 149.8 | 90% | ||||||||||||||
Interest expense | 31.3 | 34.8 | 102.0 | 106.0 | ||||||||||||||||
Loss on extinguishment of debt | — | — | 2.9 | — | ||||||||||||||||
Interest income | (4.3 | ) | (3.4 | ) | (12.0 | ) | (11.2 | ) | ||||||||||||
Other (income) expense, net | (22.2 | ) | 7.9 | (0.3 | ) | 25.9 | ||||||||||||||
Total other expenses | 4.8 | 39.3 | 92.6 | 120.7 | ||||||||||||||||
Income, before income taxes | 182.1 | 48.0 | * | 192.2 | 29.1 | * | ||||||||||||||
Income taxes | (68.3 | ) | (36.1 | ) | (136.5 | ) | (99.5 | ) | ||||||||||||
Net income (loss) | 113.8 | 11.9 | * | 55.7 | (70.4 | ) | * | |||||||||||||
Net loss attributable to noncontrolling interests | 0.7 | 0.6 | 2.4 | 0.9 | ||||||||||||||||
Net income (loss) attributable to Avon | 114.5 | 12.5 | * | 58.1 | (69.5 | ) | * | |||||||||||||
Earnings (loss) per share(1) | ||||||||||||||||||||
Basic | $ | 0.21 | $ | 0.01 | * | $ | 0.09 | $ | (0.20 | ) | * | |||||||||
Diluted | $ | 0.21 | $ | 0.01 | * | $ | 0.09 | $ | (0.20 | ) | * | |||||||||
Weighted-average shares outstanding: | ||||||||||||||||||||
Basic | 442.3 | 440.0 | 441.8 | 439.5 | ||||||||||||||||
Diluted | 442.3 | 440.0 | 441.8 | 439.5 | ||||||||||||||||
* Calculation not meaningful | ||||||||||||||||||||
(1) Under the two-class method, earnings (loss) per share is calculated using net gain allocable to common shares, which is derived by reducing net income (loss) by the income (loss) allocable to participating securities and earnings allocated to convertible preferred stock. Net income allocable to common shares used in the basic and diluted earnings per share calculation was $94.3 and $6.5 for the three months ended September 30, 2018 and 2017, respectively. Net income (loss) allocable to common shares used in the basic and diluted earnings (loss) per share calculation was $39.3 and ($85.8) for the nine months ended September 30, 2018 and 2017, respectively. |
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 452.6 | $ | 881.5 | ||||
Accounts receivable, net | 374.3 | 457.2 | ||||||
Inventories | 682.2 | 598.2 | ||||||
Prepaid expenses and other | 264.2 | 296.4 | ||||||
Total current assets | 1,773.3 | 2,233.3 | ||||||
Property, plant and equipment, at cost | 1,395.3 | 1,481.9 | ||||||
Less accumulated depreciation | (771.3 | ) | (779.2 | ) | ||||
Property, plant and equipment, net | 624.0 | 702.7 | ||||||
Goodwill | 92.8 | 95.7 | ||||||
Other assets | 584.5 | 666.2 | ||||||
Total assets | $ | 3,074.6 | $ | 3,697.9 | ||||
Liabilities, Series C Convertible Preferred Stock and Shareholders’ Deficit | ||||||||
Current Liabilities | ||||||||
Debt maturing within one year | $ | 16.3 | $ | 25.7 | ||||
Accounts payable | 764.8 | 832.2 | ||||||
Accrued compensation | 105.2 | 130.3 | ||||||
Other accrued liabilities | 391.5 | 405.6 | ||||||
Sales taxes and taxes other than income | 114.9 | 153.0 | ||||||
Income taxes | 25.5 | 12.8 | ||||||
Total current liabilities | 1,418.2 | 1,559.6 | ||||||
Long-term debt | 1,630.8 | 1,872.2 | ||||||
Employee benefit plans | 132.3 | 150.6 | ||||||
Long-term income taxes | 132.7 | 84.9 | ||||||
Long-term sales taxes and taxes other than income | — | 193.1 | ||||||
Other liabilities | 77.6 | 84.4 | ||||||
Total liabilities | 3,391.6 | 3,944.8 | ||||||
Series C convertible preferred stock | 485.9 | 467.8 | ||||||
Shareholders’ Deficit | ||||||||
Common stock | 190.3 | 189.7 | ||||||
Additional paid-in capital | 2,299.1 | 2,291.2 | ||||||
Retained earnings | 2,318.4 | 2,320.3 | ||||||
Accumulated other comprehensive loss | (1,015.9 | ) | (926.2 | ) | ||||
Treasury stock, at cost | (4,602.3 | ) | (4,600.0 | ) | ||||
Total Avon shareholders’ deficit | (810.4 | ) | (725.0 | ) | ||||
Noncontrolling interests | 7.5 | 10.3 | ||||||
Total shareholders’ deficit | (802.9 | ) | (714.7 | ) | ||||
Total liabilities, series C convertible preferred stock and shareholders’ deficit | $ | 3,074.6 | $ | 3,697.9 | ||||
Nine Months Ended | ||||||||
September 30 | ||||||||
2018 | 2017 | |||||||
Cash Flows from Operating Activities | ||||||||
Net income (loss) | $ | 55.7 | $ | (70.4 | ) | |||
Adjustments to reconcile net income (loss) to net cash (used) provided by operating activities: | ||||||||
Depreciation | 61.1 | 63.4 | ||||||
Amortization | 20.3 | 22.2 | ||||||
Provision for doubtful accounts | 126.9 | 168.5 | ||||||
Provision for obsolescence | 22.5 | 27.7 | ||||||
Share-based compensation | 9.5 | 22.0 | ||||||
Foreign exchange losses | 12.5 | 12.0 | ||||||
Deferred income taxes | (28.5 | ) | 15.4 | |||||
Charge for Argentinian monetary assets and liabilities | (8.5 | ) | — | |||||
Brazil IPI tax release | (194.7 | ) | ||||||
Other | 14.2 | 37.0 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (93.4 | ) | (170.1 | ) | ||||
Inventories | (131.8 | ) | (71.6 | ) | ||||
Prepaid expenses and other | (38.2 | ) | 18.0 | |||||
Accounts payable and accrued liabilities | (30.7 | ) | (51.1 | ) | ||||
Income and other taxes | 74.1 | (15.3 | ) | |||||
Noncurrent assets and liabilities | 60.7 | 27.3 | ||||||
Net cash (used) provided by operating activities of continuing operations | (68.3 | ) | 35.0 | |||||
Cash Flows from Investing Activities | ||||||||
Capital expenditures | (71.0 | ) | (66.7 | ) | ||||
Disposal of assets | 2.3 | 3.3 | ||||||
Distribution from New Avon LLC | — | 22.0 | ||||||
Other investing activities | (3.3 | ) | (0.1 | ) | ||||
Net cash used by investing activities of continuing operations | (72.0 | ) | (41.5 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Debt, net (maturities of three months or less) | (6.8 | ) | (0.7 | ) | ||||
Repayment of debt | (238.9 | ) | (2.3 | ) | ||||
Repurchase of common stock | (3.1 | ) | (6.6 | ) | ||||
Other financing activities | (6.3 | ) | (0.2 | ) | ||||
Net cash used by financing activities of continuing operations | (255.1 | ) | (9.8 | ) | ||||
Cash Flows from Discontinued Operations | ||||||||
Net cash used by operating activities of discontinued operations | — | (7.5 | ) | |||||
Net cash used by discontinued operations | — | (7.5 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (33.5 | ) | 33.2 | |||||
Net (decrease) increase in cash and cash equivalents | (428.9 | ) | 9.4 | |||||
Cash and cash equivalents at beginning of year | 881.5 | 654.4 | ||||||
Cash and cash equivalents at end of period | $ | 452.6 | $ | 663.8 |
CATEGORY SALES FROM REPORTABLE SEGMENTS (US$) | ||||||||||||||||
Consolidated | ||||||||||||||||
Reported | Excluding the impact of adopting ASC 606 | |||||||||||||||
Three Months Ended September 30 | US$ | C$ | US$ | C$ | ||||||||||||
2018 | 2017 | % var. vs 3Q17 | % var. vs 3Q17 | % var. vs 3Q17 | % var. vs 3Q17 | |||||||||||
Beauty: | ||||||||||||||||
Skincare | $ | 339.0 | $ | 393.7 | (14)% | (4)% | (14)% | (4)% | ||||||||
Fragrance | 331.9 | 388.1 | (14) | (3) | (14) | (3) | ||||||||||
Color | 192.0 | 243.6 | (21) | (11) | (21) | (10) | ||||||||||
Total Beauty | 862.9 | 1,025.4 | (16) | (5) | (16) | (5) | ||||||||||
Fashion & Home: | ||||||||||||||||
Fashion (jewelry/watches/apparel/ footwear/accessories/children's) | 174.7 | 192.9 | (9) | (3) | (9) | (2) | ||||||||||
Home (gift & decorative products/housewares/ entertainment & leisure/children's/nutrition) | 140.1 | 148.7 | (6) | 8 | (6) | 9 | ||||||||||
Total Fashion & Home | 314.8 | 341.6 | (8) | 2 | (8) | 2 | ||||||||||
Brazil IPI tax release | 168.4 | — | * | * | * | * | ||||||||||
Net sales from reportable segments | 1,346.1 | 1,367.0 | (2) | 12 | (1) | 13 | ||||||||||
Other revenue from reportable segments | 69.7 | 29.8 | * | * | (28) | (19) | ||||||||||
Total revenue from reportable segments | 1,415.8 | 1,396.8 | 1 | 16 | (2) | 12 | ||||||||||
Total revenue from Other operating segments and business activities | 8.4 | 21.0 | (60) | (60) | (60) | (60) | ||||||||||
Total revenue | $ | 1,424.2 | $ | 1,417.8 | — | 14 | (3) | 11 | ||||||||
CATEGORY SALES FROM REPORTABLE SEGMENTS (US$) | ||||||||||||||||
Consolidated | ||||||||||||||||
Reported | Excluding the impact of adopting ASC 606 | |||||||||||||||
Nine Months Ended September 30 | US$ | C$ | US$ | C$ | ||||||||||||
2018 | 2017 | % var. vs 9M17 | % var. vs 9M17 | % var. vs 9M17 | % var. vs 9M17 | |||||||||||
Beauty: | ||||||||||||||||
Skincare | $ | 1,100.5 | $ | 1,171.7 | (6)% | (2)% | (7)% | (3)% | ||||||||
Fragrance | 1,033.7 | 1,096.8 | (6) | (1)% | (7) | (2) | ||||||||||
Color | 640.0 | 716.9 | (11) | (7) | (11) | (8) | ||||||||||
Total Beauty | 2,774.2 | 2,985.4 | (7) | (3) | (8) | (4) | ||||||||||
Fashion & Home: | ||||||||||||||||
Fashion (jewelry/watches/apparel/ footwear/accessories/children's) | 549.2 | 585.6 | (6) | (4) | (7) | (5) | ||||||||||
Home (gift & decorative products/housewares/ entertainment & leisure/children's/nutrition) | 413.8 | 427.3 | (3) | 4 | (4) | 3 | ||||||||||
Total Fashion & Home | 963.0 | 1,012.9 | (5) | (1) | (6) | (2) | ||||||||||
Brazil IPI tax release | 168.4 | — | * | * | * | * | ||||||||||
Net sales from reportable segments | 3,905.6 | 3,998.3 | (2) | 3 | (3) | 2 | ||||||||||
Other revenue from reportable segments | 219.9 | 86.2 | * | * | (22) | (18) | ||||||||||
Total revenue from reportable segments | 4,125.5 | 4,084.5 | 1 | 6 | (3) | 2 | ||||||||||
Total revenue from Other operating segments and business activities | 44.1 | 62.3 | (29) | (30) | (32) | (32) | ||||||||||
Total revenue | $ | 4,169.6 | $ | 4,146.8 | 1 | 6 | (4) | 1 | ||||||||
NINE MONTHS ENDED SEPTEMBER 30, 2018 | |||||||||||||||||||||||||||||||
SEGMENT RESULTS | |||||||||||||||||||||||||||||||
($ in millions) | |||||||||||||||||||||||||||||||
Revenue | Active Representatives | Average Order C$ | Units Sold | Price/ Mix C$ | Ending Representatives | ||||||||||||||||||||||||||
US$ | US$ | C$ | |||||||||||||||||||||||||||||
Revenue & Drivers | Reported (GAAP) | % var. vs 9M17 | Adjusted (non-GAAP) | % var. vs 9M17 | % var. vs 9M17 | % var. vs 9M17 | % var. vs 9M17 | % var. vs 9M17 | % var. vs 9M17 | % var. vs 9M17 | |||||||||||||||||||||
Europe, Middle East & Africa | $ | 1,512.0 | 2 | % | $ | 1,512.0 | 2 | % | — | % | (3 | )% | 3 | % | (3 | )% | 3 | % | (5 | )% | |||||||||||
South Latin America | 1,658.6 | 1 | 1,490.2 | (10 | ) | 2 | (6 | ) | 8 | (7 | ) | 9 | (7 | ) | |||||||||||||||||
North Latin America | 609.9 | — | 609.9 | — | 2 | (5 | ) | 7 | (4 | ) | 6 | (9 | ) | ||||||||||||||||||
Asia Pacific | 345.0 | — | 345.0 | — | 2 | (2 | ) | 4 | — | 2 | (2 | ) | |||||||||||||||||||
Total from reportable segments | 4,125.5 | 1 | 3,957.1 | (3 | ) | 1 | (4 | ) | 5 | (5 | ) | 6 | (6 | ) | |||||||||||||||||
Other operating segments and business activities | 44.1 | (29 | ) | 44.1 | (29 | ) | (30 | ) | * | * | * | * | * | ||||||||||||||||||
Total Avon | $ | 4,169.6 | 1 | % | $ | 4,001.2 | (4 | )% | 1 | % | (4 | )% | 5 | % | (5 | )% | 6 | % | (6 | )% |
Operating Profit/Margin | 2018 Operating Profit US$ | 2018 Operating Margin US$ | 2018 Adjusted Operating Profit US$ | 2018 Adjusted Operating Margin US$ | Change in US$ vs 9M17 | Change in C$ vs 9M17 | ||||||||||
Segment profit/margin | ||||||||||||||||
Europe, Middle East & Africa | $ | 194.9 | 12.9% | $ | 194.9 | 12.9% | (210) bps | (220) bps | ||||||||
South Latin America | 276.5 | 16.7 | 108.1 | 7.3 | (40) | (20) | ||||||||||
North Latin America | 54.1 | 8.9 | 54.1 | 8.9 | (50) | (70) | ||||||||||
Asia Pacific | 27.3 | 7.9 | 27.3 | 7.9 | (290) | (240) | ||||||||||
Total from reportable segments | 552.8 | 13.4 | 384.4 | 9.7 | (110) | (130) | ||||||||||
Other operating segments and business activities | 2.7 | 2.7 | ||||||||||||||
Unallocated global expenses | (216.3 | ) | (216.3 | ) | ||||||||||||
CTI restructuring initiatives | (54.4 | ) | ||||||||||||||
Total Avon | $ | 284.8 | 6.8% | $ | 170.8 | 4.3% | (60) bps | (50) bps | ||||||||
THREE MONTHS ENDED SEPTEMBER 30, 2018 | ||||||||||||||||||||||||||||
Reported (GAAP) | Brazil IPI release | CTI restructuring initiatives | Special tax items | Adjusted (Non-GAAP) | Impact of revenue recognition | Like-for-Like | ||||||||||||||||||||||
Total revenue | $ | 1,424.2 | $ | 168.4 | $ | — | $ | — | $ | 1,255.8 | $ | (45.5 | ) | $ | 1,210.3 | |||||||||||||
Cost of sales | 538.4 | — | (0.1 | ) | — | 538.5 | (69.9 | ) | 468.6 | |||||||||||||||||||
Selling, general and administrative expenses | 698.9 | — | 19.9 | — | 679.0 | 16.3 | 695.3 | |||||||||||||||||||||
Operating profit | 186.9 | (168.4 | ) | 19.8 | — | 38.3 | 8.1 | 46.4 | ||||||||||||||||||||
Income before income taxes | 182.1 | (194.7 | ) | 19.8 | — | 7.2 | 8.1 | 15.3 | ||||||||||||||||||||
Income taxes | (68.3 | ) | 66.2 | (2.3 | ) | 3.7 | (0.7 | ) | (0.7 | ) | (1.4 | ) | ||||||||||||||||
Net income | $ | 113.8 | $ | (128.5 | ) | $ | 17.5 | $ | 3.7 | $ | 6.5 | $ | 7.4 | $ | 13.9 | |||||||||||||
Diluted EPS | $ | 0.21 | $ | — | $ | 0.02 | ||||||||||||||||||||||
Gross margin | 62.2 | % | (5.1 | ) | — | — | 57.1 | % | 61.3 | % | ||||||||||||||||||
SG&A as a % of revenue | 49.1 | % | 6.4 | (1.4 | ) | — | 54.1 | % | 57.4 | % | ||||||||||||||||||
Operating margin | 13.1 | % | (11.5 | ) | 1.4 | — | 3.0 | % | 3.8 | % | ||||||||||||||||||
Effective tax rate | 37.5 | % | 9.7 | % | 9.2 | % | ||||||||||||||||||||||
NINE MONTHS ENDED SEPTEMBER 30, 2018 | ||||||||||||||||||||||||||||
Reported (GAAP) | Brazil IPI release | CTI restructuring initiatives | Special tax items | Adjusted (Non-GAAP) | Impact of revenue recognition | Like-for-Like | ||||||||||||||||||||||
Total revenue | $ | 4,169.6 | $ | 168.4 | $ | — | $ | — | $ | 4,001.2 | $ | (183.9 | ) | $ | 3,817.3 | |||||||||||||
Cost of sales | 1,657.8 | — | 1.0 | — | 1,656.8 | (208.5 | ) | 1,448.3 | ||||||||||||||||||||
Selling, general and administrative expenses | 2,227.0 | — | 53.4 | — | 2,173.6 | 37.6 | 2,211.2 | |||||||||||||||||||||
Operating profit | 284.8 | (168.4 | ) | 54.4 | — | 170.8 | (13.0 | ) | 157.8 | |||||||||||||||||||
Income before income taxes | 192.2 | (194.7 | ) | 54.4 | — | 51.9 | (13.0 | ) | 38.9 | |||||||||||||||||||
Income taxes | (136.5 | ) | 66.2 | (4.4 | ) | 18.4 | (56.3 | ) | 3.0 | (53.3 | ) | |||||||||||||||||
Net income (loss) | $ | 55.7 | $ | (128.5 | ) | $ | 50.0 | $ | 18.4 | $ | (4.4 | ) | $ | (10.0 | ) | $ | (14.4 | ) | ||||||||||
Diluted EPS | $ | 0.09 | $ | (0.05 | ) | $ | (0.07 | ) | ||||||||||||||||||||
Gross margin | 60.2 | % | (1.6 | ) | — | — | 58.6 | % | 62.1 | % | ||||||||||||||||||
SG&A as a % of revenue | 53.4 | % | 2.2 | (1.3 | ) | — | 54.3 | % | 57.9 | % | ||||||||||||||||||
Operating margin | 6.8 | % | (3.8 | ) | 1.3 | — | 4.3 | % | 4.1 | % | ||||||||||||||||||
Effective tax rate | 71.0 | % | 108.5 | % | 137.0 | % | ||||||||||||||||||||||
THREE MONTHS ENDED SEPTEMBER 30, 2017 | ||||||||||||
Reported (GAAP) | CTI restructuring initiatives | Adjusted (Non-GAAP) | ||||||||||
Total revenue | $ | 1,417.8 | $ | — | $ | 1,417.8 | ||||||
Cost of sales | 550.0 | — | 550.0 | |||||||||
Selling, general and administrative expenses | 780.5 | 6.2 | 774.3 | |||||||||
Operating profit | 87.3 | 6.2 | 93.5 | |||||||||
Income before income taxes | 48.0 | 6.2 | 54.2 | |||||||||
Income taxes | (36.1 | ) | (0.1 | ) | (36.2 | ) | ||||||
Net income | $ | 11.9 | $ | 6.1 | $ | 18.0 | ||||||
Diluted EPS | $ | 0.01 | $ | 0.03 | ||||||||
Gross margin | 61.2 | % | — | 61.2 | % | |||||||
SG&A as a % of revenue | 55.1 | % | (0.4 | ) | 54.6 | % | ||||||
Operating margin | 6.2 | % | 0.4 | 6.6 | % | |||||||
Effective tax rate | 75.2 | % | 66.8 | % | ||||||||
NINE MONTHS ENDED SEPTEMBER 30, 2017 | ||||||||||||||||
Reported (GAAP) | CTI restructuring initiatives | Loss contingency | Adjusted (Non-GAAP) | |||||||||||||
Total revenue | $ | 4,146.8 | $ | — | $ | — | $ | 4,146.8 | ||||||||
Cost of sales | 1,592.1 | (0.1 | ) | — | 1,592.2 | |||||||||||
Selling, general and administrative expenses | 2,404.9 | 36.6 | 18.2 | 2,350.1 | ||||||||||||
Operating profit | 149.8 | 36.5 | 18.2 | 204.5 | ||||||||||||
Income before income taxes | 29.1 | 36.5 | 18.2 | 83.8 | ||||||||||||
Income taxes | (99.5 | ) | (1.9 | ) | — | (101.4 | ) | |||||||||
Net loss | $ | (70.4 | ) | $ | 34.6 | $ | 18.2 | $ | (17.6 | ) | ||||||
Diluted EPS | $ | (0.20 | ) | $ | (0.08 | ) | ||||||||||
Gross margin | 61.6 | % | — | — | 61.6 | % | ||||||||||
SG&A as a % of revenue | 58.0 | % | (0.9 | ) | (0.4 | ) | 56.7 | % | ||||||||
Operating margin | 3.6 | % | 0.9 | 0.4 | 4.9 | % | ||||||||||
Effective tax rate | 341.9 | % | 121.0 | % | ||||||||||||
Approximate Impact of Foreign Currency | |||||||||||||||
Third-Quarter 2018 | Nine-Months 2018 | ||||||||||||||
Estimated impact ($ in millions) | Estimated impact on diluted EPS | Estimated impact ($ in millions) | Estimated impact on diluted EPS | ||||||||||||
Year-on-Year impact on Reported (GAAP) results: | |||||||||||||||
Total revenue | (14) pts | (5) pts | |||||||||||||
Operating profit - transaction | $ | (5 | ) | $ | (0.01 | ) | $ | (15 | ) | $ | (0.02 | ) | |||
Operating profit - translation | (60 | ) | (0.10 | ) | (60 | ) | (0.11 | ) | |||||||
Total operating profit | $ | (65 | ) | $ | (0.11 | ) | $ | (75 | ) | $ | (0.13 | ) | |||
Operating margin | (240) bps | (130) bps | |||||||||||||
Revaluation of working capital | $ | (5 | ) | $ | (0.01 | ) | $ | (20 | ) | $ | (0.03 | ) | |||
Diluted EPS | $ | (0.12 | ) | $ | (0.16 | ) | |||||||||
Year-on-Year impact on Adjusted (Non-GAAP) results: | |||||||||||||||
Adjusted revenue | (10) pts | (3) pts | |||||||||||||
Adjusted operating profit - transaction | $ | (5 | ) | $ | (0.01 | ) | $ | (15 | ) | $ | (0.02 | ) | |||
Adjusted operating profit - translation | (15 | ) | (0.02 | ) | (15 | ) | (0.03 | ) | |||||||
Total Adjusted operating profit | $ | (20 | ) | $ | (0.03 | ) | $ | (30 | ) | $ | (0.05 | ) | |||
Adjusted operating margin | (100) bps | (50) bps | |||||||||||||
Revaluation of working capital | $ | (5 | ) | $ | (0.01 | ) | $ | (20 | ) | $ | (0.03 | ) | |||
Adjusted diluted EPS | $ | (0.04 | ) | $ | (0.08 | ) | |||||||||
Amounts in the table above may not necessarily sum because the computations are made independently. |
• | a reduction to retained earnings of $52.7 before taxes ($41.1 after tax), with a corresponding impact to deferred income taxes of $11.6; |
• | a reduction to prepaid expenses and other of $54.9; |
• | an increase to inventories of $39.3; and |
• | an increase to other accrued liabilities of $37.1 due to the net impact of the establishment of a contract liability of $91.8 for deferred revenue where our performance obligations are not yet satisfied, which is partially offset by a reduction in the sales incentive accrual of $54.7. |
Impact of change in revenue recognition standard | |||||||||||
Line items impacted within the Consolidated Statements of Operations | Per consolidated financial statements | Adjustments | Balances excluding the impact of adopting ASC 606 | ||||||||
Revenue | |||||||||||
Net sales | $ | 1,346.3 | $ | 2.8 | (1) | $ | 1,349.1 | ||||
Other revenue | 77.9 | (48.3 | ) | (2) | 29.6 | ||||||
Total revenue | 1,424.2 | (45.5 | ) | 1,378.7 | |||||||
Costs and expenses | |||||||||||
Cost of sales | 538.4 | (69.9 | ) | (3) | 468.5 | ||||||
Selling, general and administrative expenses | 698.9 | 16.3 | (4) | 715.2 | |||||||
Operating profit | 186.9 | 8.1 | 195.0 | ||||||||
Income before income taxes | 182.1 | 8.1 | 190.2 | ||||||||
Income taxes | (68.3 | ) | (.7 | ) | (69.0 | ) | |||||
Net income | 113.8 | 7.4 | 121.2 | ||||||||
Net income attributable to Avon | 114.5 | 7.4 | 121.9 |
Impact of change in revenue recognition standard | |||||||||||
Line items impacted within the Consolidated Statements of Operations | Per consolidated financial statements | Adjustments | Balances excluding the impact of adopting ASC 606 | ||||||||
Revenue | |||||||||||
Net sales | $ | 3,924.7 | $ | (30.3 | ) | (1) | $ | 3,894.4 | |||
Other revenue | 244.9 | (153.6 | ) | (2) | 91.3 | ||||||
Total revenue | 4,169.6 | (183.9 | ) | 3,985.7 | |||||||
Costs and expenses | |||||||||||
Cost of sales | 1,657.8 | (208.5 | ) | (3) | 1,449.3 | ||||||
Selling, general and administrative expenses | 2,227.0 | 37.6 | (4) | 2,264.6 | |||||||
Operating profit | 284.8 | (13.0 | ) | 271.8 | |||||||
Income before income taxes | 192.2 | (13.0 | ) | 179.2 | |||||||
Income taxes | (136.5 | ) | 3.0 | (133.5 | ) | ||||||
Net income | 55.7 | (10.0 | ) | 45.7 | |||||||
Net income attributable to Avon | 58.1 | (10.0 | ) | 48.1 |
Impact of change in revenue recognition standard | |||||||||||
Line items impacted within the Consolidated Balance Sheets | Per consolidated financial statements | Adjustments | Balances excluding the impact of adopting ASC 606 | ||||||||
Assets | |||||||||||
Accounts receivable, net | $ | 374.3 | $ | (10.9 | ) | (1) | $ | 363.4 | |||
Inventories | 682.2 | (40.1 | ) | (2) | 642.1 | ||||||
Prepaid expenses and other | 264.2 | 46.4 | (2) | 310.6 | |||||||
Other assets | 584.5 | (10.2 | ) | (3) | 574.3 | ||||||
Total assets | 3,074.6 | (14.8 | ) | 3,059.8 | |||||||
Liabilities, Series C Convertible Preferred Stock and Shareholders’ Deficit | |||||||||||
Other accrued liabilities | 391.5 | (38.7 | ) | (4) | 352.8 | ||||||
Income taxes | 25.5 | (3.0 | ) | 22.5 | |||||||
Total current liabilities | 1,418.2 | (41.7 | ) | 1,376.5 | |||||||
Other liabilities | 77.6 | (1.3 | ) | 76.3 | |||||||
Total liabilities | 3,391.6 | (43.0 | ) | 3,348.6 | |||||||
Retained earnings | 2,318.4 | 31.1 | (5) | 2,349.5 | |||||||
Accumulated other comprehensive loss | (1,015.9 | ) | (2.9 | ) | (1,018.8 | ) | |||||
Total Avon shareholders’ deficit | (810.4 | ) | 28.2 | (782.2 | ) | ||||||
Total shareholders’ deficit | (802.9 | ) | 28.2 | (774.7 | ) | ||||||
Total liabilities, series C convertible preferred stock and shareholders’ deficit | 3,074.6 | (14.8 | ) | 3,059.8 |
Impact of change in revenue recognition standard | |||||||||||
Line items impacted within the Consolidated Statements of Cash Flows | Per consolidated financial statements | Adjustments | Balances excluding the impact of adopting ASC 606 | ||||||||
Net income | $ | 55.7 | $ | (10.0 | ) | $ | 45.7 | ||||
Other | 14.2 | (2.9 | ) | 11.3 | |||||||
Changes in assets and liabilities: | |||||||||||
Accounts receivable | (93.4 | ) | 2.3 | (91.1 | ) | ||||||
Inventories | (131.8 | ) | 0.8 | (131.0 | ) | ||||||
Prepaid expenses and other | (38.2 | ) | 5.3 | (32.9 | ) | ||||||
Accounts payable and accrued liabilities | (30.7 | ) | 9.8 | (20.9 | ) | ||||||
Income and other taxes | 74.1 | (3.0 | ) | 71.1 | |||||||
Noncurrent assets and liabilities | 60.7 | (2.3 | ) | 58.4 |
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