Revlon reports Q3 net earnings of US$9.5M, compared with year-ago loss of US$15M, amid company's implementation of turnaround program; net sales fall 2.2% to US$339.4M

Nevin Barich

NEW YORK , October 24, 2013 (press release) – Revlon, Inc. (NYSE:REV) today announced results for the third quarter ended September 30, 2013.

Third quarter 2013 results compared to third quarter 2012:

Net sales of $339.4 million compared to $347.0 million, a decrease of 2.2%. Excluding unfavorable foreign currency fluctuations of $11.4 million, third quarter 2013 net sales increased 1.1%.

Operating income of $41.8 million compared to $19.1 million. Operating income in 2013 included $5.9 million of expenses related to the acquisition of The Colomer Group, $1.8 million of insurance recovery for costs related to resolving litigation related to the Company’s 2009 exchange offer, and a $1.4 million net gain associated with the September 2012
restructuring and related actions. Operating income in 2012 included $24.1 million of restructuring and related charges and a charge of $2.2 million related to the litigation noted above.
Operating income in the third quarter of 2013 was negatively impacted by $4.7 million due to foreign currency fluctuations.

Interest expense, including preferred stock dividends, of $17.9 million compared to $21.5 million.

Net income of $9.5 million, or $0.18 per diluted share, compared to net loss of $15.0 million, or $0.29 per diluted share.

Adjusted EBITDAa of $59.3 million compared to $36.2 million.

Both net income and Adjusted EBITDA in 2012 and 2013 were impacted by the items noted in operating income above.

Net cash used in operating activities of $5.5 million compared to net cash provided by operating activities of $39.6 million; free cash flowb of $4.8 million compared to $34.2 million.
Commenting on today’s announcement, Revlon Vice Chairman and Interim Chief Executive Officer, David L. Kennedy, commented “Our net sales during the third quarter increased modestly year-over-year as we grew in each of our international regions, offsetting lower net sales in the U.S. We maintained strong operating margins, which in part benefited from the execution of our 2012 restructuring plans. We will continue our intense focus on building our brands through innovative, high quality new products, effective brand communication, appropriate levels of advertising and promotion, and superb execution in all aspects of our business.”

Mr. Kennedy continued, “The recently announced acquisition of The Colomer Group represents a significant, strategic step forward for the Company. The Colomer Group primarily markets and sells professional products to salons and other professional channels, complementing Revlon’s primarily mass-channel business. The combination provides us with a strong platform on which to generate profitable growth. Further, the combination will provide enhanced product innovation and marketing capabilities, and will broaden the Company’s scale, brand and geographic scope. We expect the acquisition to provide cost synergies and that it will be accretive to cash flow and earnings in the first year. Over the coming months our focus will be to ensure the success of the combined business.”

The Colomer Group Acquisition

As previously disclosed, on October 9, 2013, the Company completed its acquisition of The Colomer Group (“TCG”), including the Revlon Professional business, for a cash purchase price of $665 million after giving effect to purchase price adjustments set forth in the share purchase agreement. The Company financed this acquisition with proceeds from the previously disclosed $700 million upsizing of its bank term loan facility.

TCG is a beauty care company with approximately $500 million in annual net sales that markets and sells professional products primarily to salons and other professional channels not currently served by Revlon. Key professional brands acquired as part of the transaction include Revlon Professional, Intercosmo, Orofluido and UniqOne hair care brands; CND nail polishes and enhancements, including the successful Shellac innovation; and American Crew men’s grooming range. TCG also sells certain brands directly into retail channels, including Natural Honey body lotions and Llongueras hair care, and operates a multi-cultural hair-care business under the Crème of Nature brand. This acquisition expands Revlon’s geographic scope with approximately 50% of TCG’s net sales in Europe, Middle East and Africa, and approximately 40% in the U.S.

The Company expects to achieve approximately $25 million of annualized cost synergies by the end of year two as a result of combining the Revlon and TCG businesses. Costs to integrate and achieve the targeted cost synergies over this two-year period are expected to be approximately $40 million. The acquired business’ results of operations will be included in the Company’s consolidated financial statements commencing on October 9, 2013, the date of acquisition.

Third Quarter 2013 Results

Net sales in the third quarter of 2013 were $339.4 million, a decrease of $7.6 million, or 2.2%, compared to $347.0 million in the same period last year. Excluding unfavorable foreign currency fluctuations of $11.4 million, net sales increased by $3.8 million, or 1.1%. The increase was primarily driven by higher net sales of Revlon color cosmetics, Revlon ColorSilk hair color and Revlon Beauty Tools. These increases were partially offset by lower net sales in Venezuela and lower net sales of other beauty care products.

In the United States, net sales in the third quarter of 2013 were $185.8 million, a decrease of $6.2 million, or 3.2%, compared to $192.0 million in the same period last year. The decrease was primarily driven by lower net sales of Revlon and Almay color cosmetics, partially offset by higher net sales of Revlon Colorsilk hair color.

In Asia Pacific, net sales in the third quarter of 2013 were $58.9 million, a decrease of $2.0 million, or 3.3%, compared to $60.9 million in the same period last year. Excluding the unfavorable impact of foreign currency fluctuations, net sales increased $2.9 million, or 4.8%, primarily due to higher net sales of Revlon color cosmetics throughout most of the region, partially offset by lower net sales of other beauty care products in Hong Kong.

In Europe, Middle East and Africa, net sales in the third quarter of 2013 were $46.0 million, an increase of $2.2 million, or 5.0%, compared to $43.8 million in the same period last year. Excluding the unfavorable impact of foreign currency fluctuations, net sales increased $6.1 million, or 13.9%, primarily due to higher net sales of Revlon color cosmetics in the U.K. and in certain distributor territories, as well as higher net sales of fragrances in Italy and South Africa. Net sales in the third quarter of 2012 included the negative impact of a returns accrual of $1.6 million associated with the September 2012 restructuring and related actions in France and Italy.

In Latin America and Canada, net sales in the third quarter of 2013 were $48.7 million, a decrease of $1.6 million, or 3.2%, compared to $50.3 million in the same period last year. Excluding the unfavorable impact of foreign currency fluctuations, net sales increased $1.0 million, or 2.0%. Net sales in the region were negatively impacted by $2.6 million of lower net sales in Venezuela primarily due to the impact of business conditions in the country, including Venezuela’s currency restrictions. Excluding Venezuela, the increase was primarily due to higher net sales of Revlon color cosmetics in Argentina, Mexico and certain distributor territories, as well as other beauty care products in Argentina and certain distributor territories. Net sales in Argentina benefited from higher selling prices resulting from market conditions and inflation. These increases were partially offset by lower net sales of Revlon color cosmetics in Canada.

Operating income in the third quarter of 2013 was $41.8 million, compared to $19.1 million in the same period last year. Adjusted EBITDA in the third quarter of 2013 was $59.3 million, compared to $36.2 million in the same period last year. Operating income and Adjusted EBITDA in 2013 included $5.9 million of expenses related to the acquisition of TCG, $1.8 million of insurance recovery for costs related to resolving litigation related to the Company’s 2009 exchange offer, and a $1.4 million net gain associated with the September 2012 restructuring and related actions, primarily due to the sale of the Company’s manufacturing facility in France. Operating income in the third quarter of 2013 was negatively impacted by $4.7 million due to foreign currency fluctuations. Operating income in 2012 included $24.1 million of restructuring and related charges associated with the September 2012 restructuring and related actions and a charge of $2.2 million related to the litigation noted above.

Operating income and Adjusted EBITDA for the third quarter of 2013 also included $0.9 million of higher incentive compensation expense related to a previously disclosed modification to the structure of the Company’s long-term incentive plan to better align the plan with the Company’s long-term performance. While the new structure does not change the amount of the employees’ potential annual incentive award, the transition is expected to result in higher expense in 2013 and 2014, as compared to 2012, by approximately $5 million and $3 million, respectively.

Interest expense, including preferred stock dividends, decreased $3.6 million to $17.9 million in the third quarter of 2013, compared to the same period last year, primarily due to lower interest rates as a result of the February 2013 senior notes refinancing and February 2013 bank term loan amendment.

The provision for income taxes was $12.0 million, compared to $11.5 million in the same period last year. Cash paid for income taxes, net of refunds, in the third quarter of 2013 was $2.7 million, compared to $2.9 million in the same period last year.

Net income in the third quarter of 2013 was $9.5 million, or $0.18 per diluted share, compared to a net loss of $15.0 million, or $0.29 per diluted share in the same period last year. Net income in 2013 included $5.9 million, before and after tax, of expenses related to the acquisition of TCG, $1.8 million, before and after tax, of insurance recovery for costs related to resolving litigation related to the Company’s 2009 exchange offer, and a $1.4 million, before and after tax, net gain associated with the September 2012 restructuring and related actions, primarily due to the sale of the Company’s manufacturing facility in France. Net loss in the third quarter of 2012 included $24.1 million ($23.1 million after tax) of restructuring and related charges associated with the September 2012 restructuring and related actions and a charge of $2.2 million, before and after tax, related to the litigation noted above.

Net cash used in operating activities in the third quarter of 2013 was $5.5 million, compared to net cash provided by operating activities of $39.6 million in the same period last year. Free cash flow in the third quarter of 2013 was $4.8 million, compared to $34.2 million in the same period last year. Cash flow in the third quarter of 2013 as compared to the same period last year was impacted by higher cash interest payments of $9.6 million, primarily due to a change in the timing of interest payments as compared to the third quarter of 2012 as a result of the senior notes refinancing in February 2013, $8.9 million paid related to resolving litigation related to the Company’s 2009 exchange offer, as well as other unfavorable changes in working capital.

Net cash provided by investing activities in the third quarter of 2013 was $10.3 million, compared to net cash used in investing activities of $71.6 million in the same period last year. The third quarter of 2013 benefited from the collection of $13.1 million of insurance proceeds (the property, plant and equipment portion of the $14.1 million insurance proceeds received during the quarter) related to the 2011 fire in Venezuela and $2.7 million from the sale of the Company’s manufacturing facility in France. These gains were partially offset by $5.8 million of capital expenditures. The third quarter of 2012 included the Pure Ice acquisition.

Adjusted EBITDA and free cash flow are non-GAAP measures that are defined in the footnotes to this release and are reconciled to their most directly comparable GAAP measures, respectively, in the accompanying financial tables.

Nine Months Results

Note: The results of operations related to Pure Ice are included in the Company's consolidated financial statements commencing on the date of acquisition, July 2, 2012.

Net sales in the first nine months of 2013 were $1,021.4 million, a decrease of $13.4 million, or 1.3%, compared to net sales of $1,034.8 million in the first nine months of 2012. Excluding unfavorable foreign currency fluctuations of $23.7 million, net sales increased $10.3 million, or 1.0%.

In the United States, net sales in the first nine months of 2013 were $581.8 million, essentially unchanged year-over-year.

In Asia Pacific, net sales in the first nine months of 2013 were $166.8 million, a decrease of $6.0 million, or 3.5%, compared to $172.8 million in the same period last year. Excluding the unfavorable impact of foreign currency fluctuations, net sales increased $2.3 million, or 1.3%.

In Europe, Middle East and Africa, net sales in the first nine months of 2013 were $129.4 million, a decrease of $4.6 million, or 3.4%, compared to $134.0 million in the same period last year. Excluding the unfavorable impact of foreign currency fluctuations, net sales increased $5.8 million, or 4.3%.

In Latin America and Canada, net sales in the first nine months of 2013 were $143.4 million, a decrease of $4.0 million, or 2.7%, compared to $147.4 million in the same period last year. Excluding the unfavorable impact of foreign currency fluctuations, net sales were essentially unchanged year-over-year. Net sales in the region were negatively impacted by $8.8 million of lower net sales in Venezuela primarily due to the impact of business conditions in the country, including Venezuela’s currency restrictions.

Operating income was $148.2 million in the first nine months of 2013, compared to $106.2 million in the first nine months of 2012. Adjusted EBITDA was $199.7 million in the first nine months of 2013, compared to $154.9 million in the same period last year. Operating income and Adjusted EBITDA in the first nine months of 2013 included the following: (i) a $26.4 million insurance gain related to the 2011 fire in Venezuela; (ii) a $4.5 million charge for estimated costs to clean-up the Venezuela facility; (iii) $1.8 million of insurance recovery for costs related to resolving litigation related to the Company’s 2009 exchange offer; (iv) $6.3 million of expenses related to the acquisition of TCG; and (v) a $2.2 million net charge associated with the September 2012 restructuring and related actions. Operating income in the first nine months of 2013 was negatively impacted by $9.3 million due to foreign currency fluctuations. Operating income and Adjusted EBITDA in the first nine months of 2012 included $24.1 million of restructuring and related charges associated with the September 2012 restructuring and related actions and a net charge of $8.9 million with respect to the costs of resolving the litigation noted above.

Operating income and Adjusted EBITDA for the first nine months of 2013 also included $3.2 million of higher incentive compensation expense related to a previously disclosed modification to the structure of the Company’s long-term incentive plan to better align the plan with the Company’s long-term performance. While the new structure does not change the amount of the employees’ potential annual incentive award, the transition is expected to result in higher expense in 2013 and 2014, as compared to 2012, by approximately $5 million and $3 million, respectively.

Interest expense, including preferred stock dividends, for the first nine months of 2013 decreased $8.6 million to $55.7 million, compared to the same period last year.

The provision for income taxes for the first nine months of 2013 was $30.2 million, compared to $31.6 million in the same period last year. Cash paid for income taxes, net of refunds, for the first nine months of 2013 was $10.7 million, compared to $13.8 million in the same period last year.

Net income in the first nine months of 2013 was $27.3 million, or $0.52 per diluted share, compared to $4.6 million, or $0.09 per diluted share in the first nine months of 2012. Net income in the first nine months of 2013 included the following: (i) a $28.1 million ($17.0 million after tax) charge related primarily to the early extinguishment of debt as a result of the Company’s February 2013 senior notes refinancing and the February 2013 bank term loan amendment; (ii) a $26.4 million insurance gain related to the 2011 fire in Venezuela; (iii) a $4.5 million charge for estimated costs to clean-up the Venezuela facility; (iv) $1.8 million, before and after tax, of insurance recovery for costs related to resolving litigation related to the Company’s 2009 exchange offer; (v) $6.3 million, before and after tax, of expenses related to the acquisition of TCG; and (vi) a $2.2 million, before and after tax, net charge associated with the September 2012 restructuring and related actions. Net income in the first nine months of 2012 included $24.1 million ($23.1 million after tax) of restructuring and related charges associated with the September 2012 restructuring and related actions and a net charge of $8.9 million, before and after tax, related to the litigation noted above.

Net cash provided by operating activities in the first nine months of 2013 was $5.8 million, compared to $17.9 million in the same period last year. Free cash flow in the first nine months of 2013 was $4.4 million, compared to $3.7 million in the same period last year. Net cash used in investing activities in the first nine months of 2013 was $1.4 million, compared to $80.4 million in the same period last year. The first nine months of 2012 included the Pure Ice acquisition.

Company Strategy

The Company continues to execute its business strategy: (i) build our strong brands; (ii) develop our organizational capability; (iii) drive our company to act globally; (iv) pursue growth opportunities; and (v) improve our financial performance.

Third Quarter 2013 Results and Conference Call

The Company will host a conference call with members of the investment community on October 24, 2013 at 9:30 A.M. EDT to discuss Third Quarter 2013 results. Access to the call is available to the public at www.revloninc.com.

About Revlon

Revlon is a global color cosmetics, hair color, beauty tools, fragrances, skincare, anti-perspirant deodorants and beauty care products company whose vision is Glamour, Excitement and Innovation through high-quality products at affordable prices. Revlon® is one of the strongest consumer brand franchises in the world. Revlon’s global brand portfolio includes Revlon® color cosmetics, Almay® color cosmetics, SinfulColors® color cosmetics, Pure Ice® color cosmetics, Revlon ColorSilk® hair color, Revlon® beauty tools, Charlie® fragrances, Mitchum® anti-perspirant deodorants, and Ultima II® and Gatineau® skincare. As a result of its acquisition of The Colomer Group in October 2013, Revlon’s global portfolio also includes: Revlon Professional®, Intercosmo®, Orofluido® and UniqOne™ hair care; CND® and CND Shellac® nail polishes; and American Crew® men’s hair care. Websites featuring current product and promotional information can be reached at www.revlon.com, www.almay.com, www.mitchum.com, and www.thecolomergroup.com. Corporate and investor relations information can be accessed at www.revloninc.com.

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