Event Brief of Q2 2006 Avon Products Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

PARTICIPANTS

. Bill Pecoriello, Morgan Stanley, Analyst . Justin Hott, Bear Stearns, Analyst . Philippe Gussen, Credit Suisse, Analyst . Connie Maneaty, Prudential, Analyst . Alice Longley, Buckingham, Analyst . Sandy Beebee, HSBC, Analyst . Elena Mills, Atlantic Equities, Analyst . Andrea Jung, Avon Products, Chairman, CEO . Renee Johansen, Avon Products, VP, IR . Bill Schmitz, Deutsche Bank, Analyst . Chuck Cramb, Avon Products, EVP, Finance and Technology . Amy Chasen, Goldman Sachs, Analyst . Wendy Nicholson, Citigroup, Analyst . Chris Ferrara, Merrill Lynch, Analyst . Lauren Lieberman, Lehman Brothers, Analyst

. Linda Bolton Weiser, Oppenheimer & Co, Analyst

OVERVIEW

The Co. reported 2Q06 earnings of $0.33 per diluted share, on a consolidated basis, revenue was $2.1b, up 5% in dollars and up 4% YoverY in local currency. 2Q06 net income was $151m.

FINANCIAL DATA

A. Key Data From Call 1. 2Q06 revenue on a consolidated basis = $2.1b.

2. 2Q06 net income = $151m. 3. 2Q06 earnings = $0.33 per diluted share. 4. 2Q06 operating profit = $225m. 5. YTD CapEx = $63m. 6. As of 06/30/06, cash balances totaled $1.1b. 7. YTD share repurchase = $138m. 8. 2Q06 share repurchase = $94m.

PRESENTATION SUMMARY

S1. 2Q06 Financial Review (R.J.) 1. Highlights: 1. The Co. reported 2Q06 of $0.33 per diluted share vs. $0.69 per diluted share in 2Q05. 2. On a consolidated basis, revenue was $2.1b, up 5% in dollars and up 4% YoverY in local currency. 3. Active representatives grew 4%. 4. Units were 1% lower than in 2Q05 and offset by improved price and product mix. 5. Net Sales by Category: 1. Beauty sales, which includes color cosmetics, skincare, fragrance and personal care, rose 4% YoverY in dollars and increased 3% in local currency. 2. Beauty growth was driven by strength in fragrance and personal care. 3. Beauty Plus sales rose 13%, similar to 1Q06. 4. Beyond Beauty declined 5%, driven by continued de-emphasis

of this category in several markets. 6. Operating profit was $225m, down $119m or 35%; primarily due to significant costs associated with the Co.'s turnaround plan. 1. Costs to implement restructuring totaled $49m and included costs associated with continued organizational downsizing as well as the exit of certain unprofitable operations, primarily the Avon Salon and Spa. 2. Operating profit also included the impact of an unfavorable YoverY comparison in compensation-related expenses. 1. The impact was driven by a comparison to a year in which AVP had suspended its 401(k) match and had significantly lower bonus accruals and in some cases reversals of accruals. 2. These all totaled around $25m. 3. Additionally, the Co. had $15m of incremental expense due to the adoption of FAS 123R in Jan. 2006 and changes to its share-based compensation plan designs that were prompted by this adoption.

4. Nearly every region was impacted by these unfavorable YoverY

comparisons. 7. As in 1Q06, the Co. invested substantially against its initiatives to improve brand competitiveness. 8. Advertising increased $23m or 78% in 2Q06 to over $50m with all major markets seeing large increases and the US seeing the largest increase.

9. Operating margin was 10.8% vs. 17.3% in 2Q05. 10. Net interest expense rose significantly to $7m from $2m due to a higher debt level associated with the Co.'s aggressive share repurchase program in late 2005 as well as higher interest rates. 11. 2Q06 effective tax rate was 30.7% vs. 3.0% in 2Q05. 1. The 2006 rate includes the net impact of audit settlements in 2Q06, which impacted the rate a positive 5 points, largely offset by a 4-point impact from repatriation of foreign earnings. 2. The Co. had a large benefit in 2005 that primarily resulted from settlements of tax audits and accounted for a $0.20 per share benefit in 2Q05.

12. Net income was $151m vs. $329m in 2Q05. 13. Avg. diluted shares outstanding were down YoverY to 452m from 476m, reflecting aggressive repurchases in late 2005. 1. AVP purchased about $94m of stock during 2Q06, bringing YTD purchases to $138m. 2. At 06/30/06, had 448m shares outstanding. 2. North America: 1. Revenue of $620m was flat with 2Q05 on both the dollar and local currency basis. 2. The region's units declined 5%, and a larger avg. order offset a 7% decline in active representatives. 3. The Co. is seeing a continued decline in active representatives for some time driven by decreased ordering activity among the representatives.

1. While there are many contributors, the analysis showed that

more than 50% of the decline was caused by the rising fuel prices over the last two years. 4. Operating profit decreased 36% to $61m, and the operating margin was 9.8%. 5. OpEx included $9m of costs to implement restructuring initiatives. 6. Reflecting the Co.'s commitment to return advertising in the US to historical high levels, advertising increased significantly against this qtr. as in 1Q06. 3. Latin America: 1. Revenue grew 17% to $653m, 13% in local currency, as the region continued to benefit from the 2005 acquisition of the Co.'s licensee in Colombia, which contributed 10 points of revenue growth as well as continued strength in Brazil. 2. Mexico experienced continued softness in 2Q06, which was more than offset by strength elsewhere in the region. 3. Latin America's active representatives rose 13%, and units increased 6% with the Colombia acquisition contributing the majority of growth in both measures. 4. Operating profit decreased 24% to $97m and included costs to implement the organization delayering initiative of about $20m as well as substantial increase in advertising in both Mexico and Brazil. 5. Operating margin was 14.8%. 4. EMEA: 1. Revenue of $274m was up 2% vs. 2Q05 and rose 5% in local currency. 2. Units increased 4% vs. 2Q05, and representatives were flat. 1. Turkey was the primary driver of the performance across these measures. 3. Western Europe had operating profit of $26m, down 11% YoverY. 1. Operating margin was 9.5%. 4. 2Q06 costs included higher strategic investment including

advertising and increased ERP implementation costs. 1. The additional advertising spend went to both Turkey and UK in 2Q06.

5. Central & Eastern Europe: 1. The region's revenue rose 4%, 2% in local currency, to $289m. 2. Units decreased 6% vs. 2Q05 with the volume declines attributable to a mix shift. 3. The region's revenue growth benefited from double-digit growth

in Russia, but this was tempered by revenue declines in certain other markets, principally Poland. 4. Looking at the revenue growth from a marketing perspective, a poor color performance, especially in Central Europe, was a major factor in the region's performance in 2Q06. 5. Active representatives grew 7%, reflecting the continued

introduction and rollout of AVP sales leadership throughout

the region. 6. Operating profit of $71m was 11% lower YoverY and the operating margin was 24.6%. 1. The region's costs were negatively impacted by higher product costs and increased advertising.

6. Asia-Pacific: 1. Revenue of $196m was 10% lower in 2Q06, 8% lower in local currency and units declined 11%, as the region's performance continued to be impacted by a sizable revenue decline in Japan. 2. Active representatives in the region decreased 14%. 3. In addition to the impact of Japan's performance on this

region, results were also somewhat impacted by the closure of

the Co.'s business in Indonesia during 2Q06. 4. Japan's revenue decline was caused by a rapid decrease in its direct-mail business in advance to the rebuilding of its direct-selling business. 1. Strategically, this market is peaking to generate a higher portion of its sales from direct-selling activities, while

maintaining its direct-mail business. 5. The Co. is working to more carefully recalibrate the direct-mail business as it slowly escalates direct-selling activities in Japan. 6. Asia's 2Q06 operating profit was $12m, a decrease of 63% from 2Q05 and was negatively impacted by costs of $10m associated with the restructuring program, together with Japan's revenue decline.

7. Operating margin was 6.2%. 7. China: 1. Revenue grew 8% to $48m, including the commencement of direct selling as well as the unfavorable impact of the exit of Co.--run beauty counters.

1. Revenue was up 5% in local currency, and units were 4% lower.

2. By the end of 2Q06, AVP had closed nearly all of the store

counters formerly located in department stores, hypermarkets,

and Wal-Mart, so the beauty boutiques represent the Co.'s only

retail presence in China going forward. 3. Operating loss was $4m in 2Q06 vs. an operating loss of $1m in 2Q05. 1. The operating margin was a negative 9%. 4. 2Q06 costs included incremental advertising expenses associated with the launch of direct selling and $2m in costs to implement restructuring initiatives. 5. All regions had unfavorable YoverY variances in their global expense allocation. 1. In 2Q06, global expenses net of the allocation to the operating segments rose 95% and included $9m of costs to implement the Co.'s restructuring program. 8. Cash Flow & Balance Sheet: 1. Net cash provided by operating activities was $289m through 1H06, up $56m from 1H05. 2. The YoverY increase was mainly due to lower pension contribution, $60m; lower payments associated with incentive compensation, favorable working capital levels in AR, revenue leverage and the tax refund mentioned earlier. 3. These favorable items were partially offset by severance payments related to the Co.'s delayering initiative and restructuring, higher spending on advertising, and unfavorable

working capital levels in inventory. 4. YTD CapEx totaled $63m, down $24m from 1H05 due to the completion of most large construction projects last year. 5. During 2Q06, AVP continued to repurchase shares under the existing five-year $1b repurchase authorization with purchases totaling $94m and YTD purchases totaling $138m. 6. Inventories ended 2Q06 $96m higher than year-end 2005. 7. Inventory days increased eight days from year-end but were two days better than at the end of 1Q06 with North America behind this sequential improvement. 1. The higher other current liabilities balance was primarily driven by the restructuring program. 8. Other assets increased $265m, significantly driven by a required remeasurement of the Co.'s pension plan as a result

of its restructuring. 1. This was a shift out of equity into other assets. 9. As of 06/30/06, cash balances totaled $1.1b, up $56m from 12/31/05, and debt outstanding totaled $1.7b, up $100m from 12/31/06 for a net debt position that was $44m higher than year-end.

S2. Market Review (A.J.) 1. Details: 1. Effective this month, AVP essentially completed the initiative to …