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Avon Products Inc. (AVP)
Q1 2009 Earnings Call
May 5, 2009 9:00 am ET
Andrea Jung – Chairman, Chief Executive Officer
Charles W. Cramb – Chief Financial Officer
Renae Johansen – Vice President of Investor Relations
William Schmitz - Deutsche Bank Securities
Alice Longley - Buckingham Research
Andrew Sawyer - Goldman Sachs
Connie Maneaty - BMO Capital Markets
Ali Dibadj - Sanford C. Bernstein
Wendy Nicholson - Citigroup
Chris Ferrara - Bank of America/Merrill Lynch
Doug Lane - Jefferies
Linda Bolton Weiser - Caris & Company
Lauren Lieberman - Barclays Capital
Welcome to Avon's first quarter earnings conference call. (Operator Instructions) I'll now turn the conference over to your host, Andrea Jung.
Previous Statements by AVP
» Avon Products, Inc. Q3 2009 Earnings Call Transcript
» Avon Products, Inc. Q2 2009 Earnings Call Transcript
» Avon Products Inc. Q4 2008 Earnings Call Transcript
As we exit the quarter, I'm encouraged that the strategic actions we're taking to drive top line growth in this challenging economy have begun to yield positive results. In fact, I feel even stronger today that our powerful direct selling channel and consumer brand provide us with significant competitive advantage, never more so than in times like these.
Given this perspective, I'm just going to take a little bit of a non-traditional approach in my remarks today. I'll touch very briefly on our first quarter results and then spend the lion's share of time following up on progress on the strategies we shared with most of you at Cagney. I think this will give you a better perspective on how we see our opportunities playing out, both this year and over the longer term.
Let's turn first to the overall results for the quarter. On a reported basis, revenues were 13% lower compared with prior year. This reflected the significant negative impact of currency exchange. In local currency, revenue was up 3%, this represented an increase in our local currency growth rate from fourth quarter. Driving our revenue results in the quarter was another strong performance in Latin America, as well as a return to growth in Central and Eastern Europe.
On an overall basis, we also saw positive improvements in the key performance indicators of active representatives and units, as well as continued growth in beauty revenue in local currency. These are leading indicators of market share gains and reflect the underlying health of our business.
In Latin America, we saw healthy double-digit local currency growth for the eighth quarter in a row even against tough comps versus last year. All top markets in the region grew revenues in the double digits. Mexico grew 16% in local currency outpacing competitive retail growth rates. Our focus on rebuilding fundamentals in Mexico continues to pay off and we are executing well on all fronts. We also delivered another strong performance in Brazil in the quarter.
We posted 12% local currency growth off a large base as we continue to sustain momentum in this critical market. I was also encouraged by sequential improvement in local currency growth rates in Central and Eastern Europe in the quarter. Following a 3% local currency revenue decline in the fourth quarter, revenues year-over-year increased by 4%. Driving this return to growth was a healthy performance in Russia. There our major focus on improving the representative value proposition began to take hold.
In terms of overall company performance, I was most pleased with improvements in the key top line indicators of active representatives and unit growth in the quarter in the context of the strategies we laid out for you in February. We said that against the backdrop and the reality of unemployment in 2009 we would launch our strongest recruiting drive ever.
We also said that against the toughest consumer environment in decades we would quickly rebalance the mix and emphasize smart value products. In these two ways, we believe that Avon could drive a structural competitive advantage in these unprecedented times gaining market share and emerging in an even stronger position when the recession lifts.
So, let me just take the next few minutes to tell you about the results that we are seeing in these very early days. They clearly reinforce our belief in the advantage nature of our channel and brand. First, in terms of the channel, we were certainly very pleased with the active representative growth of 7% in the first quarter. That compared to 4% in the fourth quarter.
In the back half of this quarter we launched the largest recruiting drive in Avon's history, as we said we would. We almost doubled our investment in recruiting advertising in the quarter. We began aggressively targeting nontraditional sources of leads, such as online search engines, and we started showcasing the Avon's earning opportunities on Internet careers sites and also at career fairs.
Given rising levels of unemployment, we were prepared for a good response; however, I have to say that the level of interest has exceeded our expectations. Additions were up over 30% in March alone and 20% for the quarter overall. We exited the quarter with more than 9 million representatives on board, that's a million more than we had at the end of the first quarter last year. It is an all time high for this business.
The success of our recruiting efforts in the first quarter was evident in virtually every key market but particularly so in the United States. There we saw a dramatic 148% increase in overall leads generated in the quarter. A significant number of these new leads came in from online sources. To facilitate rapid conversion of these leads to additions, we made the strategic decision for the first time ever to share leads, not only with our 1,300 employed district sales managers, but also with our offline sales leadership representative.