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Avon Products, Inc. (AVP)
Q4 2009 Earnings Call
February 4, 2010 9:00 am ET
Andrea Jung – Chairman & Chief Executive Officer
Charles W. Cramb – Vice Chairman, Chief Finance & Strategy Officer
Christopher Ferrara – Bank of America-Merrill Lynch
Nik Modi – UBS
Lauren Lieberman – Barclays Capital
Douglas M. Lane – Jefferies & Co.
Connie Maneaty – BMO Capital
Ali Dibadj – Sanford C. Bernstein
William Schmitz – Deutsche Bank Securities
Mark Astrachan – Stifel Nicolaus
Wendy Nicholson – Citigroup
Andrew Sawyer – Goldman Sachs
Linda Bolton Weiser – Caris & Company
Alice Longley – Buckingham Research
Previous Statements by AVP
» Avon Products, Inc. Q3 2009 Earnings Call Transcript
» Avon Products, Inc. Q2 2009 Earnings Call Transcript
» Avon Products Inc. Q1 2009 Earnings Call Transcript
Thank you. Good morning everybody. Welcome to Avon’s fourth quarter earnings conference call. I am here today with Chuck Cramb, our Vice Chair and CFO. I just have to remind everyone to refer to the reported numbers as well as the cautionary statement in today’s earnings release.
I think we finished the year very well. We are very pleased with our strong fourth quarter and what was a very good year for the company. If I just actually go back a year ago when we were on the phone with you it is just like every other company. I think we were entering 2009 facing severe macroeconomic headwinds. We were looking at major GDP declines across all of our top markets in the world. Certainly for us as a consumer company we were staring down substantial consumer contraction. Then obviously for Avon when we look at the currency movement a year ago the significant currency meltdown represented a potential $1 billion drag in revenues for the company.
We decided and I think we were pretty clear in our communications certainly with the company and with all of you that early on in the year we were going to go on the offense. We went on the offense and focused on managing what was in our control as a company. This played out really, really well. We updated our play book. We had three years of very successful progress on our turnaround sustainable growth strategy but as we entered this recessionary period we updated our recession play book that as you all know focused on Smart Value. It really focused on having one of the most intense recruiting efforts we have had in our 123 years. We took very aggressive cost actions but most importantly we just stayed the course on the turnaround plan which we felt has been working very, very well.
So that was our playbook for 2009. In a highly challenging year externally we think we delivered standout results. On the left here if you look at fourth quarter 2008 a year ago our constant dollar sales were up 2%. That was really when we began to feel the pressures of the consumer contraction and the effects of the fear out there in the marketplace and the consumer contraction.
As we got into the first quarter of 2009 we really started to implement the play book, focus on the recruiting and the Smart Value products and you can see the progression of acceleration. So 3% Q1 2009, 5% Q2, 7% Q3 and then in the quarter we reported this morning 8% for the fourth quarter this year in local currency which we just think is standout. It took us from a full-year perspective to 6% local currency sales growth, at the high end of that mid single digits in a year like this. As you can imagine we feel very proud of the revenue performance.
Beauty was even stronger. Our Smart Value program fueled this strong performance. So again from a quarterly progression point of view we were really pleased that in the first half of this year we delivered 5% in both quarters one and two in Beauty and that was outperforming peers and we felt the Smart Value program really drove that along with great innovation and strategic pricing on some of our super hits.
If you look at the back half of this year we hit an 8% sales growth in Q3 and then a pretty stellar 9% Beauty sales growth in the quarter as we closed out the year. So we ended this year with 7% local currency sales growth in our core Beauty category which by all measures is a share gaining year.
Behind this was really the volume improvement and the healthy focus upon unit growth. We ignited Beauty unit growth across every price tier which was a goal for our organization. When I look back I think it is one of our biggest accomplishments. Again, if I go back a year ago in Q4 we started to see the pressures and the contraction on unit volumes which concerned us but particularly in the Value or under $5 price points we had shifted away as we were coming out of stronger economic times in the 2007/2008 period. So that drove units down. We focused very deliberately on managing that very well through 2009.
So units grew 2% in the first quarter, 3% in the second, 6% in the third and again 5%, very healthy in the fourth quarter with most important to note units growing across not only the under $5 value segment but in the $5-10 segment as well as the $10 plus. Really healthy growth. Very balanced across the entire portfolio.
When we turn to the field dynamics this was what we were staring down when we entered 2009. So as we exited 2008 average active rep growth was 4%. The trend line was obviously in the under 5% or low single digits numbers. That was something we felt we had to reverse and we had a particular advantage as a direct selling company with all of the progress, innovation and the investments against RVP. So we went on the offense and changed that trend line. We shifted it. We were up 7% in active rep growth in the first quarter and then with a tremendous amount of investment in RVP, in advertising about recruiting as well as our sales leadership rollout. We had an 11% active rep growth in 2Q, 10% in 3Q and ended the year with a very strong 11% obviously boding very well for 2010.
We had strong active representative growth across all of our commercial business units. Double digit growth in four of them and growth of 3% in North America. Again this is very broad based. We significantly out-ran our competition. If we look again at organic Beauty revenue growth in constant dollars we talked at our October 29th investor meeting about the fact that through ¾ of the year when we had looked at performance of the major Beauty competitors we were significantly outpacing them through October.
From the reported results we have seen so far while we are very pleased on an industry basis that everybody seems to be doing a little bit better in Beauty, based on the earnings releases that have preceded ours. At 9% local currency Beauty growth we think we far outpaced the competition and this is a great year for share gains for Avon.