Avon Products Inc. Earnings Call Nuggets: Commodity Costs, Latin American Margin Structure

On Tuesday, Avon Products Inc (NYSE:AVP) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Commodity Costs

Lauren Lieberman – Barclays Capital: Barclays Capital. So, I just want to ask about commodity costs actually. I just can’t really recall a time the commodity cost was called out so dramatically in the release; in the Q, and was a such big number. So, if you can just elaborate and kind of what change, what happened, and what’s concerning about that is that’s not choice, all right? The investments in SG&A and so on can be expected and have to do with stabilizing the top line. The gross margin is what’s throwing a lot of questions in my mind right now.

A Closer Look: Avon Products Earnings Cheat Sheet>>

Kimberly A. Ross – EVP and CFO: Yeah, what I can say with regards to commodity costs is, obviously, we have longer term fixed contract cost in place, so we still have some lag coming through from last year’s commodity increases in today’s numbers.

Latin American Margin Structure

William Schmitz – Deutsche Bank Securities: Could you just add a little bit more color on the Latin American margin structure, and I know you said that results in the second quarter in the top line were probably going to be a little bit worse, but should we expect that same kind of massive margin compression? Like is this a new base to work from or was this quarter a little bit of an anomaly?

Kimberly A. Ross – EVP and CFO: Well, I think I have said pretty much. All I am going to state with regards to quarter two, I mean we’re not in a position today to give you the longer term with regards to where is the natural margin for the business. With that said, as I said, we will pass a couple items that will be impacting the Latin America margin particularly in Brazil going forward in quarter two, but at this point in time I am not going to provide a specific number with regards to quarter two or other quarters.