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NEW YORK — Avon Products Inc. on Tuesday said its first-quarter profit fell 36 percent, due to significant foreign exchange pressures and the impact of the global recession that dampened demand for the cosmetics company's products.
Avon's profit missed Wall Street expectations, and its shares declined $1.05, or 4.2 percent, to $24.17 in morning trading.
To help offset weak sales, Avon is trying to boost the number of representatives who sell its products and offer more cosmetics at lower prices.
Chief Executive Andrea Jung said on a conference call with analysts that the company doubled its investment in recruiting advertising, including investment in Internet career sites and career fairs. By the end of the quarter, Avon had at least 9 million sales representatives — 1 million more than a year earlier.
"I have to say that the level of interest has exceeded our expectations," Jung said. "It is an all-time high for this business," she added.
Jung also said there was a "massive trade down" to cheaper products during the quarter that Avon hopes to benefit from by offering more products at lower prices.
"Beauty consumers are buying less frequently, paying more attention to price and switching to lower-priced brands," she said. "One point of interest for me is that only 13 percent of consumers in one of the studies said they plan to resume old spending patterns once the economy recovers."
First-quarter profit decreased to $117.3 million, or 27 cents per share, from $184.7 million, or 43 cents per share, a year earlier. The results for the latest period included 2 cents per share in restructuring costs.
Revenue fell 13 percent to $2.18 billion from $2.5 billion, including a 16 percent hit from the strong dollar. On a local-currency basis, revenue rose 3 percent. Sales declined across all segments, slipping 9 percent in cosmetics and 10 percent in fragrance, respectively. Revenue also declined in personal care and skin care.
Analysts surveyed by Thomson Reuters, who usually exclude one-time items from their estimates, on average expected profit of 33 cents per share on revenue of $2.13 billion.
Two months ago, Avon announced a restructuring that incorporated a freeze on salaries and hiring. New York-based Avon has already cut jobs and closed some operations and moved some work to countries where labor is cheaper, partly to help offset a stronger dollar.
Deutsche Bank analyst Bill Schmitz Jr. said Avon's fundamentals remain volatile, and its worldwide growth is slowing.
"We need to see more restructuring traction and resulting margin expansion to get more constructive," said Schmitz, who rates the stock "Hold."
Separately, Avon said a swine flu outbreak in Mexico that sickened hundreds of people worldwide and since waned has not affected it. Mexico Health Secretary Jose Cordova said infections were trending downward after 27 deaths in the country.
