Overseas Issues Hammer Avon

The makeup company guides the quarter and year lower.
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Second-quarter earnings rose 41% from a year ago at

Avon

(AVP) - Get Report

, helped by a tax benefit. Revenue rose a weaker-than-expected 6% due to unforeseen weakness in China and Eastern Europe and the company issued soft guidance.

Avon earned $328.6 million, or 69 cents a share, in the quarter, compared with $232.3 million, or 49 cents a share, last year. Earnings in the most recent quarter were boosted by 20 cents a share due to a tax gain. Revenue was $1.98 billion in the 2005 quarter compared with $1.87 billion a year ago.

Avon said analysts knew about all but 3 cents of the tax benefit to EPS, suggesting the company matched the Thomson First Call estimate of 66 cents a share in the quarter. Analysts were forecasting revenue of $2.03 billion.

The makeup company said its top line was crimped by a bad reaction among store owners in China to Avon's resumption of direct sales in that country. It also cited lower-than-expected revenue growth in Central and Eastern Europe "resulting from underperformance of several key marketing offers" and delayed expansion in Russia.

Avon guided third-quarter estimates lower, saying it expects to earn 34 cents to 36 cents a share in the period, below the Thomson First Call consensus of 43 cents a share. For the year, the company expects to earn $2.03 to $2.08 a share, also below the consensus estimate of $2.14 a share.

"We expect our current recovery actions to improve performances in China and Central and Eastern Europe as we move through the balance of the year," Avon said. "If all of these actions and trends play out in the back half of the year, we can achieve the top end of our earnings projection. However, given the volatility we've experienced in recent quarters on a number of fronts, we believe that it is prudent to allow for further risk, thus the breadth of our forecast."

The stock was recently down $2.60, or 7.1%, to $34.