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Avon Earnings Plunge

The makeup maker cites costs for a restructuring and higher interest.
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fourth-quarter earnings plunged 37% from a year ago, as a restructuring charge and ballooning interest expense offset a small rise in sales.

Avon earned $183.2 million, or 40 cents a share, in the quarter, compared with $288.8 million, or 61 cents a share, a year ago. Excluding a charge of 10 cents a share for employee reductions, Avon earned 50 cents a share in the latest period, beating estimates by 7 cents.

Sales were $2.40 billion, up 4% from last year and ahead of the $2.34 billion Thomson First Call consensus.

Avon recorded a $56 million expense for restructuring initiatives in the quarter, including costs for job cuts and other cost reductions. Its operating margin fell to 12.4% in the quarter from 17.8% a year ago, as the interest expense doubled to $20.3 billion as the company borrowed to buy back stock.

The latest quarter's effective tax rate was 35.7%, "significantly higher" than a year ago due to nonrecurring benefits and an "unfavorable country mix."

Avon predicted 2006 revenue that is flat to up slightly from the $8.1 billion it put up for all of 2005. The Thomson First Call consensus is $8.29 billion. Restructuring costs will have "a significant negative impact on earnings throughout the year."

"With a challenging 2005 behind us, we are now aggressively moving forward with the turnaround plan we outlined at our investor update meeting last November. We are aggressively addressing costs through our restructuring program, while at the same time stepping up the level of investment behind our brands with innovation and a planned 50% increase in advertising spending in 2006," Avon said.