Avon Products Inc. (AVP) said Tuesday fourth-quarter profit rose 11 percent, driven by international sales as its U.S. business continued to struggle.

Profit at the direct seller of beauty products climbed to $288.8 million, or 61 cents per share, matching Wall Street's expectations, up from $261.3 million, or 55 cents a share, a year earlier.

Avon also said it would raise its quarterly dividend 18 percent to 16.5 cents per share and plans to repurchase $1 billion of its common stock over the next five years.

Net sales rose 10 percent to $2.286 billion, just ahead of analysts' mean expectation for sales of about $2.284 billion, according to Reuters Estimates.

U.S. sales fell 5 percent, as expected, due mainly to a decline in non-beauty products. U.S. operating profit plunged 24 percent to $101 million on the drop in sales, costs to revamp the non-beauty lineup and continued cost pressures.

Shares of Avon, which are up about 37 percent in the past year, were 10 cents higher at $42.32 on the New York Stock Exchange (search).

While there was growth overall, problems in the U.S. market "should limit upside on the stock," said Deutsche Bank analyst William Schmitz, who maintained his "hold" rating and $40 price target on Avon.

Avon, whose product lines include Anew and Skin-So-Soft (search), is ridding itself of the toy business and introducing other items, such as plus-size intimate apparel. It will also soon promote lower-priced items with a "beauty on a budget" section of its catalog that lists items costing less than $10.

Amid efforts to increase sales of non-beauty items, Avon's U.S. representatives will start selling Playtex and Bali bras, made by Sara Lee Corp. (SLE), in the third quarter.

Sara Lee will handle logistics such as inventory and shipping, Avon Chairman and Chief Executive Andrea Jung (search) said during a conference call. That setup differs from a similar pact Avon had with Warnaco in the mid-1990s.

"It's just an opportunity to expand distribution channels," Sara Lee spokeswoman Julie Ketay said. "You can buy on the Internet, you can buy at retail stores and now you can buy in the comfort of your own home."

Avon will determine the pricing, Ketay said.

Avon said it still expects to earn $1.95 to $2 per share this year, in line with analysts' mean expectation of $1.97.

Avon expects first-quarter earnings of about 35 cents per share, matching Wall Street's mean target and up from 31 cents in the 2004 quarter.

The number of active representatives selling Avon's products rose at least 10 percent in every region in the fourth quarter except the United States, where active representatives fell 2 percent. Avon had forecast that growth in active U.S. representatives would fall slightly in the quarter.

"With active reps down 2 percent, there are few signs the business has begun to turn, despite a full pipeline of initiatives to drive growth," Schmitz said in a note.

The number of active representatives is a key measure for Avon, which has 4.9 million sales representatives worldwide.

In Europe, sales rose 26 percent, with a 36-percent jump in operating profit. Excluding the impact of currency translation, sales rose 16 percent in Europe.

In Latin America, sales rose 12 percent and operating profit was up 11 percent, led by strength in Brazil and Venezuela, the company said. Sales in local currencies were up 14 percent in the region.

Sales and operating profit each rose 9 percent in Asia Pacific, with sales in local currencies up 7 percent.

Avon forecast 2005 international revenue growth in the mid-teens and operating profit growth of more than 20 percent, driven by Russia, China, Turkey and Brazil. The company still expects U.S. revenue to fall slightly this year and resume growth in 2006.