Big gains in Latin America covered up U.S. declines at Colgate-Palmolive Co (CL.N) and Avon Products Inc (AVP.N), with the world's largest direct seller of cosmetics seen as having a harder road to recovery.

At Avon, revenue rose 19 percent in Latin America and fell 7 percent in North America.

Sales at Colgate, best known for its toothpaste, rose 17 percent in Latin America and fell 3 percent in North America.

"Neither of these is pretty," said Sanford Bernstein analyst Ali Dibadj, who has "neutral" ratings on both companies' shares. "I'd argue Avon is worse, but Avon is also viewed as much cheaper."

Avon trades at about 13.4 times expected earnings, below Colgate's multiple of 16.8, according to Reuters data on Thursday morning.

Shares of Avon fell 2.9 percent to $26.94, while Colgate rose 0.8 percent to $86.14.

For a graphic on the companies, click

Two years after the recession officially ended, U.S. shoppers still pause before spending more on items like updated toothbrushes and the latest lipsticks as food and gas prices have risen.

So household product makers including Colgate and Avon, both based in New York, have steadily been working on the international businesses that make up the bulk of their sales.

North America only accounts for about 18 percent of sales at both Avon and Colgate, excluding the latter company's Hill's pet food unit. Latin America, meanwhile, accounts for 47.2 percent of revenue for Avon and 29 percent for Colgate.

Both companies are busy tweaking areas such as pricing, advertising and operations to squeeze out better U.S. results.


In North America, Avon's revenue fell 7 percent. The number of active representatives selling its goods declined 8 percent, the number of items sold dropped 16 percent and operating profit plunged 31 percent.

"Stabilizing the U.S., short of turning it around, is key to restore investor confidence," and the second quarter doesn't suggest Avon is anywhere near that point, said Weeden & Co analyst Javier Escalante.

Dibadj suggested that Avon consider leaving the United States, where he said it is not making any money and has not shown improvement for some time.

"Unfortunately for Avon, the direct selling model at the low end of the market, which is where they are, is somewhat irrelevant to the U.S. consumer," he said. "Somebody else could probably run the U.S. better than they can."

Chief Executive Officer Andrea Jung defended Avon's U.S. plans during a conference call.

Dibadj and others from Wall Street had questioned what the company called "bold" changes. For example, some representatives who report to district sales managers will now report to sellers in the field with more experience, who in turn will report to the district sales managers.

The U.S. business can grow at or slightly ahead of the pace of the overall beauty industry longer term, said interim Chief Financial Officer Chuck Cramb, who also oversees developed markets after a February management shuffling.


Colgate earned $1.26 per share in the second quarter, beating analysts' average estimate by 1 cent per share, according to Thomson Reuters I/B/E/S. Sales rose slightly more than expected to $4.19 billion.

Colgate, which is still under some promotional pressure, expects prices in the United States to be basically flat this quarter and rise in the fourth quarter, said CEO Ian Cook.

The company still expects mid-single-digit percentage growth in earnings per share in 2011, excluding a charge for Venezuela accounting.

Avon earned 49 cents per share, excluding restructuring costs, 1 cent below Wall Street's average forecast. Revenue of $2.86 billion missed estimates.

The company, which does not give earnings forecasts, said it still expected mid-single-digit revenue growth and significant margin expansion in the second half of 2011.

Avon's strength in Latin America came without a leader, as the 125-year-old company looks outside of its walls for someone to run that business after posting disappointing fourth-quarter results in key countries such as Brazil.

Latin America was not the key to growth for all companies. Revlon Inc's (REV.N) sales rose about 9 percent in the United States, but dipped in Latin America due to declines in countries such as Mexico and Venezuela.