Avon Third-Quarter Net Falls as Sales Drop in China, U.K.

Avon Products Inc. (AVP), the cosmetics seller that named a new chief executive officer after three years of declining earnings, said third-quarter profit fell 81 percent as sales fell in the U.K. and China.

Net income dropped to $31.6 million, or 7 cents a share, from $164.2 million, or 38 cents, a year earlier, New York-based Avon said today in a statement. Excluding some items, profit was 17 cents a share. The average of 14 analysts’ estimates compiled by Bloomberg was 23 cents.

Chief Executive Officer Sheri McCoy, who took over in April, said today she was lowering the company’s dividend and plans to cut $400 million in costs in the next three years while boosting sales at a mid-single-digit percentage rate. Third- quarter sales fell 25 percent in the U.K. and 31 percent in China as the number of active representatives dropped 1 percent.

“It’s still unclear the extent of Avon’s operational issues and the amount of time and investment” that will be needed to fix them, Tim Conder, an analyst at Wells Fargo & Co. in St. Louis, wrote today in a note. He rates Avon market perform, the equivalent of a hold.

The shares rose 1.9 percent to $15.79 at 10:26 a.m. in New York. Avon fell 11 percent this year through yesterday.

Sales Decline

Total revenue fell 7.7 percent to $2.55 billion. The average estimate of 11 analysts was $2.59 billion. Excluding the effect of foreign-currency fluctuations, sales rose 1 percent.

In North America, revenue declined 6 percent in the main business, hurt by fewer representatives, and dropped 25 percent in its Silpada jewelry unit.

The quarterly dividend will shrink to 6 cents a share from 23 cents as part of a review of the company’s capital structure, Avon said today. The company also set a goal of boosting revenue at a mid-single-digit percentage rate for the next three years and cutting costs by at least $400 million, mainly through reducing selling, general and administrative expenses.

McCoy succeeded Andrea Jung, who had a 13-year tenure leading Avon that included declining earnings, a bribery investigation and a rejected $10.7 billion takeover offer from Coty Inc. (COTY) earlier this year. Jung will step down as executive chairman at the end of the year and be succeeded by Fred Hassan, currently the company’s lead independent director.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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