(Dollars in millions, except per share data)

OVERVIEW

We are a global manufacturer and marketer of beauty and related products. Our business is conducted worldwide, primarily in the direct selling channel. We presently have sales operations in approximately 64 countries and territories, including the United States, and distribute products in approximately 51 more. Our reportable segments are based on geographic operations in six regions: North America; Latin America; Western Europe, Middle East & Africa; Central & Eastern Europe; Asia Pacific; and China. We centrally manage global Brand Marketing and Supply Chain organizations. Product categories include: Beauty, which consists of cosmetics, fragrances, skin care and toiletries; Beauty Plus, which consists of fashion jewelry, watches, apparel and accessories; and Beyond Beauty, which consists of home products and gift and decorative products. Sales from Health and Wellness products and mark., a global cosmetics brand that focuses on the market for young women, are included among these categories based on product type. Sales are made to the ultimate consumer principally through approximately 5.3 million independent Representatives, who are independent contractors and not employees of Avon. The success of our business is highly dependent on recruiting, motivating and retaining Representatives.

We view the geographic diversity of our businesses as a strategic advantage. In developed markets, such as the United States, we seek to achieve growth in line with that of the overall beauty market, while in developing and emerging markets we have higher growth targets.

Revenue grew in every segment during the first quarter of 2007. We continued to experience strong growth from most developing markets, such as Brazil, China, Colombia, Russia, Turkey and Venezuela. Revenue in China increased significantly during the first quarter of 2007 due to the continued roll-out of direct selling. Revenue grew in our key developed markets, such as the United States and the United Kingdom. Revenue in Mexico continued to decline as we face challenges that require a longer-term solution.

Strategic Initiatives

In November 2005, we launched a comprehensive, multi-year turnaround plan to restore sustainable growth. Our four-point turnaround plan includes:

• Committing to brand competitiveness by focusing research and development resources on product innovation and by increasing our advertising;

• Winning with commercial edge by more effectively utilizing pricing and promotion, expanding our Sales Leadership program and improving the attractiveness of our Representative earnings opportunity as needed;

• Elevating organizational effectiveness by redesigning our structure to eliminate layers of management in order to take full advantage of our global scale and size; and

• Transforming the cost structure so that our costs are aligned to our revenue growth and remain so.

During the first quarter of 2007, our turnaround plan delivered results. Revenues increased 9%, Active Representatives increased 4% and sales from products in the Beauty category increased 10%, benefiting from higher investments in advertising and the Representative Value Proposition ("RVP"). These investments were partially funded by savings from restructuring initiatives and other cost savings initiatives. Our turnaround plan is a multi-year effort and we may see some quarterly variability as we move through the turnaround.

In our ongoing effort to improve brand competitiveness, we increased our investment in advertising by 80% from $39.6 in the first quarter of 2006, to $71.3 in the first quarter of 2007. The incremental spending on advertising was allocated across all geographies, with more than 50% of the increase in China, Brazil and Russia. The advertising investments supported new product launches, such as Anew Alternative Intensive Eye Cream and Ultra Color Rich Lipstick, and the launch of "Hello Tomorrow," Avon's first global, integrated marketing campaign, supporting both the brand and direct selling channel. We also launched the rebranding of our color line in certain markets late in the first quarter of 2007 and will continue the global roll-out during the remainder of 2007.

As part of the Representative Value Proposition ("RVP"), we also continued to invest in our direct selling channel to improve the reward and effort equation for our Representatives. We measure our investment in RVP as the incremental cost to provide these value-enhancing initiatives. In the first quarter of 2007, our investments in RVP were approximately $15 and included the following:

AVON PRODUCTS, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

• Continued roll-out of our Sales Leadership program;

• Increased incentives spending;

• Web-enabled Representatives; and

• Distributed additional free brochures to Representatives.

We continue to analyze our product line under our product line simplification program ("PLS"), which includes an analysis of our product line to develop a smaller range of better performing, more profitable products. This program is designed to improve the shopping experience, our brand image and Representative experiences by reducing the number of SKUs overall, which is expected to have significant savings implications. We incurred costs of $17.3 related to our PLS program during 2007, primarily incremental inventory obsolescence expense of $11.5. Depending on the results of additional PLS analyses that will be performed to identify the optimal product assortment over the next three years and timing of any resulting decisions, we may incur future costs related to PLS in the range of $80, principally in the form of inventory obsolescence charges. We expect to realize annualized benefits from PLS in excess of $200, with benefits building progressively over the next three years.

In March 2007, we launched the first wave of our strategic sourcing initiative ("SSI"), which is expected to reduce direct and indirect costs of materials, goods and services. Under this initiative, we will shift our purchasing strategy toward a global supplier orientation from one that is more local and component oriented. Beyond lower costs, goals include improving asset management, service for Representatives and vendor relationships. We expect to realize initial benefits from SSI beginning in the third quarter of 2007, with annualized benefits from this initiative in excess of $200 by the end of 2009. We also continued the implementation of a Sales & Operations Planning initiative that is intended to better align demand plans with our supply capabilities and provide us with earlier visibility to any potential supply issues.

We are institutionalizing a zero-overhead-growth philosophy ("ZOG") that aims to offset inflation through productivity improvements. These improvements in productivity will come primarily from previously announced initiatives such as our restructuring program, PLS and SSI. We have defined overhead as fixed expenses such as costs associated with our sales and marketing infrastructure, and management and administrative activities. Overhead excludes variable expenses such as shipping and handling costs and bonuses to our employees in the sales organization. During the first quarter of 2007, overhead expenses decreased as compared to the first quarter of 2006.

Restructuring Initiatives

In connection with our four-point turnaround plan, in November 2005, we announced a multi-year restructuring plan. We expect to incur total restructuring charges and other costs to implement our restructuring initiatives in the range of $500 before taxes. We have incurred total costs to implement, net of adjustments, of $295.0 ($9.7 in the first quarter of 2007, $228.8 in 2006 and $56.5 in 2005) for actions associated with our restructuring initiatives under the plan, primarily for employee-related costs, including severance, pension and other termination benefits and professional service fees related to these initiatives. We expect to incur significant additional charges over the next few years. We expect our restructuring initiatives to deliver in excess of $300.0 of annualized savings when fully realized. The actions implemented to date resulted in savings of approximately $55 in the first quarter of 2007, most of which were associated with the delayering program that we completed in 2006. We expect that the actions announced to date will result in savings in the range of $230 in 2007.

See Note 9, Restructuring Initiatives, for additional information.

New Accounting Pronouncements

Effective January 1, 2007, we adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, ("FIN 48"). As a result of the implementation of FIN 48, we recognized an $18.3 increase in the liability for unrecognized tax benefits (including interest and penalties), which was accounted for as a reduction to the January 1, 2007 balance of retained earnings.

In February 2007, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment to FASB Statement No. 115, ("SFAS 159"), which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective January 1, 2008, for Avon. We are currently evaluating the impact of SFAS 159 on our consolidated financial statements.

AVON PRODUCTS, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective January 1, 2008, for Avon. We are currently evaluating the impact of SFAS 157 on our consolidated financial statements.

See Note 1, Accounting Policies, for additional information.

RESULTS OF OPERATIONS-THREE MONTHS ENDED MARCH 31, 2007 AS COMPARED TO 2006

Consolidated

                                                                                     Favorable
                                                                                   (Unfavorable)
                                                                                      %/Point
                                                     2007            2006             Change
Total revenue                                      $ 2,185.3       $ 2,003.2                   9 %
Cost of sales                                          836.7           779.7                  (7 )%
Selling, general and administrative expenses         1,110.8         1,137.3                   2 %
Advertising expenses*                                   71.3            39.6                 (80 )%
Operating profit                                       237.8            86.2                 176 %
Interest expense                                        26.5            26.5                  -  %
Interest income                                        (12.3 )         (13.2 )                (7 )%
Other expense, net                                        .6             1.6                  63 %
Net income                                             150.0            56.2                 167 %
Diluted earnings per share                               .34             .12                 183 %

Gross margin                                            61.7 %          61.1 %                .6
Selling, general and administrative expenses
as a % of total revenue                                 50.8 %          56.8 %               6.0
Operating margin                                        10.9 %           4.3 %               6.6
Effective tax rate                                      32.4 %          20.3 %             (12.1 )

Units sold                                                                                     4 %
Active Representatives                                                                         4 %

Revenue

Total revenue increased 9% in 2007, with growth in all segments. Revenue growth was driven by an increase of 4% in Active Representatives. Foreign exchange contributed 3 percentage points to the revenue growth.

On a category basis, the 2007 increase in revenue was primarily driven by an increase of 10% in Beauty sales, with increases in all sub-categories of Beauty. Within the Beauty category, fragrance grew 12%, personal care grew 17%, color grew 9%, and skin care grew 6%. Beauty Plus sales increased 7% and Beyond Beauty sales increased 5%.

Gross Margin

Gross margin increased .6 point in 2007 primarily due to lower inventory obsolescence provisions of approximately $10 in 2007 and improved manufacturing costs, benefiting from higher throughput in 2007. 2007 included incremental inventory obsolescence charges of $11.5 related to our PLS program, while the first

AVON PRODUCTS, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

quarter of 2006 included incremental inventory obsolescence charges of $20.5 related to our decision to discontinue the sale of certain heavily discounted products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $26.5 in 2007, primarily due to $111.6 of lower costs incurred to implement our restructuring initiatives. Additionally, lower overhead expenses, reflecting savings associated with restructuring initiatives, were partially offset by higher spending on advertising, higher variable expenses from increased sales volume, and investments in RVP.

See the "Segment Review" section of Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information related to changes in operating margin by segment.

Other Expense

Interest expense was consistent with 2006. At March 31, 2007, we held interest rate swap agreements that effectively converted approximately 30% of our outstanding long-term, fixed-rate borrowings to a variable interest rate based on LIBOR.

Interest income decreased in 2007, primarily due to lower cash and cash equivalent balances during the first quarter of 2007 as compared to the first quarter of 2006.

Other expense, net decreased in 2007 primarily due to higher net foreign exchange gains in 2007.

Effective Tax Rate

When comparing the effective tax rates in the first quarter of 2007 and 2006, the tax rate in 2006 was favorably impacted by approximately 18 points due to audit settlements and the closure of tax years by expiration of the statute of limitations. These benefits to the 2006 tax rate were partially offset by the unfavorable tax impact associated with our restructuring initiatives.

AVON PRODUCTS, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

Segment Review

North America



                                                               %/Point Change
                                                                        Local
                                       2007        2006       US$      Currency
             Revenue                  $ 630.6     $ 613.8        3 %          3 %
             Operating profit            77.2        38.0      103 %        103 %
             Operating margin            12.2 %       6.2 %    6.0          6.1

             Units sold                                                       5 %
             Active Representatives                                          -  %

The dominant contributor to North America's results is the U.S. business.

Total revenue increased due to a larger average order, reflecting strong increases in sales of Beauty Plus. Active Representatives were level with 2006, supported by continued investments in Representative value-enhancing initiatives. During 2007, we made additional investments in RVP, including free bonus brochures, an enhanced bonus for new Leadership Representatives and free career seminars. While we have seen improvement in our U.S. business, the U.S. business is in the midst of a long-term turnaround plan and we expect some variability in our quarterly performance. Quarterly performance may be impacted by various factors, including the impact of fuel prices on Active Representatives ordering activity and timing of product launches.

The increase in 2007 operating margin in North America was primarily driven by lower costs to implement restructuring initiatives, which positively impacted operating margin by 3.9 points. Additionally, operating margin benefited from supply chain efficiencies, lower inventory obsolescence and lower overhead expenses primarily due to savings associated with restructuring initiatives. These benefits to operating margin were partially offset by higher spending on advertising.

Latin America



                                                               %/Point Change
                                                                        Local
                                       2007        2006       US$      Currency
             Revenue                  $ 656.3     $ 612.6        7 %          6 %
             Operating profit            88.7        69.0       29 %         27 %
             Operating margin            13.5 %      11.3 %    2.2          2.2

             Units sold                                                       3 %
             Active Representatives                                           2 %

Total revenue increased in 2007, reflecting a larger average order and growth in Active Representatives. The region benefited from growth in most markets, particularly from low-teens growth in Brazil and increases in the range of 20% in Venezuela and Colombia. Growth in these markets more than compensated for continued softness in Mexico. Revenue growth in Brazil was driven by an increase in average order, primarily due to consumer incentives and a favorable mix of products sold, as well as favorable foreign exchange. While we expect that growth in Brazil will be below 2006's 32% growth rate, we expect that the rate of growth will increase above the first quarter 2007 level as we move through the balance of the year. Revenue in Mexico declined 9%, primarily due to a decrease in Active Representatives and unfavorable foreign exchange. Near the end of the first quarter of 2007, we began to experience some improvements in certain of our field indicators. While we have seen improvement in our business in Mexico within the quarter, this business is in the midst of a long-term turnaround plan and we expect some variability in our quarterly performance. We may see improvement in Mexico by the end of 2007, if not earlier.

AVON PRODUCTS, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

The increase in operating margin in Latin America during 2007 was primarily driven by lower costs to implement restructuring initiatives, which positively impacted operating margin by 2.3 points. Additionally, lower inventory obsolescence expense and lower overhead expenses, primarily due to savings associated with restructuring initiatives, were partially offset by spending on advertising.

Currency restrictions enacted by the Venezuelan government in 2003 have become more restrictive and have further impacted the ability of our subsidiary in Venezuela ("Avon Venezuela") to obtain foreign currency at the official rate to pay for imported products. Unless official foreign exchange is made more readily available, Avon Venezuela's operations will continue to be negatively impacted as it will need to obtain more of its foreign currency needs from non-government sources where the exchange rate is weaker than the official rate.

At March 31, 2007, Avon Venezuela had cash balances of approximately $110, primarily denominated in bolivars. During 2006, Avon Venezuela remitted dividends at the official exchange rate. As a result, we continue to use the official rate to translate the financial statements of Avon Venezuela into U.S. dollars. In 2006, Avon Venezuela's revenue and operating profit represented approximately 3% and 7% of consolidated revenue and consolidated operating profit, respectively.

Western Europe, Middle East & Africa



                                                               %/Point Change
                                                                        Local
                                      2007        2006        US$      Currency
            Revenue                  $ 271.6     $ 233.0        17 %          9 %
            Operating profit            13.7       (34.1 )      NA           NA
            Operating margin             5.0 %     (14.6 )%   19.6         19.9

            Units sold                                                       11 %
            Active Representatives                                            5 %

Total revenue increased due to a larger average order and growth in Active Representatives, as well as favorable foreign exchange. The revenue increase was primarily driven by growth in the United Kingdom in the high teens and Turkey of over 30%. Revenue growth in the United Kingdom benefited from favorable foreign exchange and a larger average order. Additionally, the United Kingdom experienced an increase in Active Representatives, mainly due to the strength of the Sales Leadership program. Revenue growth in Turkey, which was negatively impacted by foreign exchange, was primarily due to a larger average order and significant growth in Active Representatives. Average order in the United Kingdom and Turkey benefited from significant investments in advertising.

The increase in 2007 operating margin was primarily driven by lower costs to implement restructuring initiatives, which positively impacted operating margin by 13.0 points. Other contributing items include lower product costs due to favorable foreign exchange movements, lower overhead expenses, partially offset by higher spending on advertising.

AVON PRODUCTS, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

Central & Eastern Europe



                                                               %/Point Change
                                                                        Local
                                       2007        2006       US$      Currency
             Revenue                  $ 358.9     $ 306.0       17 %          9 %
             Operating profit            77.4        61.7       25 %         13 %
             Operating margin            21.6 %      20.2 %    1.4           .9

             Units sold                                                       1 %
             Active Representatives                                           8 %

Total revenue increased in 2007 reflecting growth in Active Representatives, as well as favorable foreign exchange. The region's revenue growth was primarily driven by an increase in Russia of over 30% due to strong Active Representative growth and increased advertising, as well as favorable foreign exchange. Revenue from color cosmetics increased over 20%, reflecting improved merchandising put in place in the fourth quarter of 2006.

The increase in 2007 operating margin was primarily driven by lower costs to implement restructuring initiatives, which positively impacted operating margin by 1.7 points, lower product costs due to favorable foreign exchange movements, and lower overhead expenses. These positive impacts were partially offset by higher spending on advertising, as well as higher inventory obsolescence expense.

Asia Pacific



                                                               %/Point Change
                                                                        Local
                                      2007        2006        US$      Currency
            Revenue                  $ 199.8     $ 190.4         5 %          2 %
            Operating profit            20.9        (2.1 )      NA           NA
            Operating margin            10.5 %      (1.1 )%   11.6         11.3

            Units sold                                                        2 %
            Active Representatives                                            2 %

Total revenue increased in 2007 reflecting an increase in Active Representatives and favorable foreign exchange. The region's revenue increase was primarily driven by growth in the Philippines, which partially benefited from favorable foreign exchange. Revenue in the Philippines increased in the high-teens, driven by substantial growth in Active Representatives, supported by RVP initiatives, including the roll-out of the Sales Leadership program nationwide. Japan's revenue was approximately flat with last year, as growth in sales from direct selling substantially offset declines in sales from direct mailing.

The increase in 2007 operating margin was primarily driven by lower costs to implement restructuring initiatives, which positively impacted operating margin by 6.8 points. Additionally, the operating margin improvement was due to lower inventory obsolescence expense and lower overhead expenses primarily due to savings associated with restructuring initiatives, partially offset by higher spending on RVP and advertising.

AVON PRODUCTS, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

China


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