Fourth-Quarter 2011 (compared to fourth-quarter 2010)
Total revenue of $3.0 billion decreased 4% or 1% in constant dollars. Total units declined 2%, while price/mix was a benefit of 1% during the quarter. Active Representatives were down 3%.
Fourth-quarter 2011 gross margin was 61.1%, 70 basis points lower than the prior-year quarter primarily due to an inventory-related charge in Brazil and commodity cost pressures.
Selling, general and administrative expense in the quarter increased as a percent of revenue by 2% versus fourth-quarter 2010, and increased 3% on an adjusted non-GAAP basis due to higher distribution costs, bad debt expense, and investments in Representative Value Proposition ("RVP"). Avon invested an incremental $35 million in RVP in the fourth quarter of 2011 in Sales Leadership and higher incentives. This more than offset a $21 million decline in advertising, which was down 23% to $71 million.
Fourth-quarter 2011 costs associated with the company's 2005 and 2009 restructuring programs were $9 million pre-tax, down from $58 million pre-tax, or $0.01 and $0.09 per diluted share, respectively.
During the quarter, the Company took a non-cash charge of $263 million, or $0.38 per diluted share, to adjust goodwill and an intangible asset related to the acquisition of Silpada Designs, Inc. ("Silpada"). This non-cash impairment charge was largely driven by the rise in silver prices since the acquisition and the negative impact on Silpada's revenues and margins.
Operating profit was $13 million in the quarter and operating margin was 0.4%, significantly impacted by the Silpada impairment charge. Adjusted non-GAAP operating profit was down 31%, and adjusted non-GAAP operating margin was 9.4%, down 360 basis points from a year ago due to higher field and distribution costs in Brazil, higher investments in RVP in the U.S., and lower gross margin...
Income from continuing operations in the fourth quarter of 2011 was $0.3 million or zero cents per diluted share, significantly impacted by the Silpada impairment charge. Excluding the impact of restructuring costs and the impairment charge, adjusted non-GAAP income from continuing operations was $172 million, or $0.39 per diluted share.
Full-Year 2011 Results (compared to full-year 2010)
Total revenue of $11.3 billion increased 4% or up 1% in constant dollars. Acquisitions contributed 1% to revenue growth during the year. Total Beauty sales were up 5%, or 2% on a constant-dollar basis. Active Representatives declined 1% and units sold were down by 2%.
Operating profit of $855 million decreased 20% and operating margin was 7.6%, down 230 basis points. Excluding the impact of restructuring costs and the Silpada impairment charge, adjusted non-GAAP operating profit was $1.2 billion, down 6%, and adjusted non-GAAP operating margin was 10.3%, down 110 basis points from a year ago.
Full-year income from continuing operations was $526 million, or $1.20 per diluted share, compared with $595 million, or $1.36 per diluted share last year. Adjusted non-GAAP income from continuing operations was $719 million, or $1.64 per diluted share, compared with $786 million, or $1.80 per diluted share.
Cash flow from operations was $656 million in 2011, $33 million lower, primarily due to a $75 million pension contribution, a $36 million payment associated with a long-term incentive compensation plan, and higher restructuring payments during the year. Partially offsetting these items were higher cash net income from operations and higher recovery of value added taxes in Brazil. Avon's net debt (total debt less cash) at year-end 2011 was $2.1 billion, up $107 million from the prior-year period. Capital expenditures were $277 million for the year.
Avon will conduct a conference call at 9:00 A.M. today to discuss the quarter results. The dial-in number for the call is (800) 843-2086 in the U.S. or (706) 643-1815 from non-U.S. locations (conference ID number: 42704239). The call will be webcast live at www.avoninvestor.com and the call and related slides can be accessed or downloaded from that site for a period of one year.
