Third Quarter Sales Forecast to Increase 11%; Operating Profit Forecast to Increase in the Range of 20%

NEW YORK, Sept. 8 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE: AVP) today reaffirmed its earnings outlook for the third quarter and full-year 2004, with earnings in the third quarter 2004 expected to increase 21% to $.34 per share, and full-year earnings projected to be up 24% to $1.72 per share. Both forecasts are consistent with the company's earlier guidance on July 28, and include the previously announced benefits from its tax and cash management strategies resulting in projected effective tax rates in the range of 31%, as expected, in the third quarter and full-year.

For the third quarter, Avon said that sales should increase 11% in both dollars and local currencies, driven by a projected 13% gain in sales of Beauty products, as well as expected 10% growth in the number of active Representatives and 14% unit volume growth.

The company also said that operating profit in the third quarter is forecast to increase in the range of 20% versus prior-year, including incremental consumer and strategic investments of $10 million. Operating margin is expected to expand in the range of 100 basis points, attributed to net benefits from the company's Business Transformation initiatives as well as operating leverage.

Commenting on the outlook, Andrea Jung, Avon's chairman and chief executive officer, said, "On a consolidated basis, our business in the third quarter is demonstrating continued double-digit strength across every key performance metric. Our international regions are each expected to generate double-digit gains in local currency sales, units and active Representatives. Operating profit should be up strongly as well, and overall, international operations should post operating margin expansion of over 200 basis points in the third quarter. This robust strength in our international business portfolio is fully offsetting softness in the U.S., where lower-than-expected consumer response to recent brochure offers is impacting results.

"Looking ahead, on a full-year basis, we remain very comfortable with our earlier earnings estimate of $1.72 per share, reflecting the continued broad- based strength of our international operations, as well as anticipated improvement in our U.S. business in the fourth quarter. The power of our global portfolio, coupled with the financial flexibility provided by our Business Transformation initiatives, position us well to achieve our 2004 earnings target," she said.

Third Quarter Regional Outlook

Avon said that U.S. sales in the third quarter are expected to be flattish versus the strong 7% growth in the prior-year period. This reflects weaker-than-expected Beauty sales due to underperformance of recent color promotions in advance of the late September category re-launch and soft sales of a Cellusculpt line extension. Sales in the quarter also reflect softness in children's apparel and toys. Lower-than-expected consumer activity is negatively impacting Representative ordering, with average active Representatives anticipated to grow 1-2% in the quarter. U.S. operating profit in the third quarter is forecast to be 5-to-10% lower year-over-year, below previous expectations, primarily due to the lower rate of third quarter sales growth.

The Europe region is again generating exceptional results in the third quarter, driven by continuing high growth rates in the markets of Central and Eastern Europe, where sales are projected to increase over 40%. Russia is once more turning in an outstanding performance, with sales trending up over 70%. The U.K. is contributing substantially to the region's growth due in part to tremendous consumer response to the recent launch of the first of three fragrances in the Today, Tomorrow, Always collection. Overall, Europe's third quarter sales should grow in the range of 30% in dollars and over 20% in local currencies, and dollar-denominated operating profit is forecast to increase more than 50%, better than expected.

In Latin America, broad-based strength should lead to higher-than-anticipated results in the quarter. Dollar-based sales are now forecast to grow in the mid-single digits, and local-currency sales should increase in the low-teens. Mexico, Avon's second largest market, is expecting an approximate 13% increase in local-currency sales, including an extremely positive response to the new fourth quarter fragrance. The region's dollar operating profit is expected to increase in the range of 15%, exceeding earlier expectations, with significant operating margin expansion of approximately 200 basis points.

The Asia/Pacific region is also exceeding earlier projections in the quarter. Both dollar and local-currency sales are projected to grow in the low-teens driven by continued significant growth in China -- where sales in the quarter are projected to climb 30% -- and strong performance in the markets of Southeast Asia. The region's dollar operating profit is expected to climb in the range of 25%.

Commenting on the fourth quarter outlook, Ms. Jung said, "We are extremely pleased with the ongoing strength of our international markets and expect the momentum to continue for the balance of the year.

"In the U.S., we have robust fourth quarter plans in place, including unprecedented advertising support for three major Beauty introductions. Early trends on our re-launched color cosmetics products, backed by advertising featuring Salma Hayek, are encouraging. Additionally, the U.S. is set to introduce a new, enhanced brochure as well as a men's catalog. U.S. Representative morale is also very high, following a successful series of motivational events across the country in August. With extremely positive field response to fourth quarter marketing plans, we anticipate that growth in active U.S. Representatives will return to the 2-3% range.

"Overall, we are confident that the strength of our fourth quarter U.S. initiatives and continuing standout results in our international operations will enable us to deliver our fifth consecutive year of exceptional performance," Ms. Jung said.

Avon management is scheduled to speak tomorrow, September 9, at 1:30 p.m. Eastern time, at the Prudential Back to School Conference. A live webcast of those remarks will be available at http://www.avoninvestor.com.

Avon is the world's leading direct seller of beauty and related products, with $6.8 billion in annual revenues. Avon markets to women around the world through 4.4 million independent sales Representatives. Avon product lines include such recognizable brand names as Avon Color, Anew, Skin-So-Soft, Avon Solutions, Advance Techniques Hair Care, Avon Naturals, Mark, and Avon Wellness. Avon also markets an extensive line of fashion jewelry and apparel. More information about Avon and its products can be found on the company's web site http://www.avoncompany.com.

Cautionary Statement For Purposes of the "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995

Statements in this release that are not historical facts or information are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's reasonable current assumptions and expectations. Such forward-looking statements involve risks, uncertainties and other factors, which may cause the actual results, levels of activity, performance or achievement of Avon Products, Inc. ("Avon" or the "Company") to be materially different from any future results expressed or implied by such forward-looking statements, and there can be no assurance that actual results will not differ materially from management's expectations. Such factors include, among others, the following: general economic and business conditions in the Company's markets, including social, economic and political uncertainties in Latin America, Asia Pacific and Central and Eastern Europe; the Company's ability to implement its business, cash management and tax strategies and its Business Transformation initiatives; the Company's ability to achieve anticipated cost savings and its profitability and growth targets, particularly in its largest markets; the impact of substantial currency fluctuations on the results of the Company's foreign operations and the cost of sourcing foreign products and the success of the Company's foreign currency hedging and risk management strategies; the Company's ability to implement its information systems initiatives; the impact of possible pension funding obligations and increased pension expense on the Company's cash flow and results of operations; the effect of legal, regulatory and tax proceedings, as well as restrictions imposed on the Company, its operations or its Representatives by foreign governments; the Company's ability to successfully identify new business opportunities; the Company's access to financing; and the Company's ability to attract and retain key executives. Additional information identifying such factors is contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2003, filed with the SEC. The Company undertakes no obligation to update any such forward-looking statements.

CONTACT:
Media
Victor Beaudet
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