Costs Weigh Down Avon

Revenue is strong, but profits decline.
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(AVP) - Get Report

said Tuesday that its second-quarter revenue rose but that net income declined from a year ago as certain costs increased.

The cosmetics maker earned $113 million, or 26 cents a share, in the latest quarter, down from $151 million, or 33 cents a share, a year ago.

Avon's most recent quarter included pretax expenses of $61 million for a product line simplification program and $21 million for restructuring. Additionally, the company had pretax costs of $71 million for investments in advertising and in its product representatives. Avon didn't provide an adjusted profit figure excluding those items.

Revenue rose 12% to $2.33 billion and was stronger than the $2.27 billion Wall Street expected. Avon said its "turnaround continues to gain traction."

While North America saw an increase in staff, the average order declined due to tough comparisons in the skin-care category. Brazil is the largest driver of growth in Latin America and is Avon's top priority in the region.

China continues to report strong revenue and grew 36% for the quarter. The average sale in China is $70, and the number of units sold increased 19%.

Avon CEO Andrea Jung said the third quarter should bring more consistent revenue growth for North America. She said that while Avon won't hit the operating margin levels reached in 2005, it will approach them.

Shares of Avon were losing 5.7% to $36.62.