Avon Swings to Loss on Restructuring

Avon Products Inc. (AVP) swung to a first-quarter loss as the door-to-door cosmetics vendor recorded charges related to restructuring, extinguishment of debt and the devaluation of Venezuelan currency, though adjusted earnings beat Wall Street expectations.

"Our first-quarter results reflect continued signs of stabilization, including early progress in our cost reduction efforts," said Chief Executive Sheri McCoy, adding that while she's pleased with the performance of the company's Latin America and Europe, Middle East and Africa regions--particularly in Brazil and Russia--there remains work to be done in Avon's other markets, particularly in the U.S.

Avon has faced deep investor dissatisfaction in the past year as it failed to deal quickly with poor results in important overseas markets, as well as a messy federal probe into allegations of bribery of officials overseas.

The company is reassessing its long-range business plan, and earlier this month said it will cut its global headcount by more than 400, restructure or close certain operations in Europe, Middle East and Africa, and exit the Ireland market as part of a broader plan to save costs in order to stabilize results in the near term.

Avon characterized those actions as a bid to take the focus off certain smaller, underperforming markets and instead concentrate on high priority markets, with the moves bringing the company's total cost savings to about $115 million to $120 million on an annual basis, or about 29% to 30% of Avon's target.

Those moves come in addition to the elimination of 1,500 positions and exiting from the South Korea and Vietnam markets, plans which the company announced in December.

For the latest period, Avon reported a quarterly loss of $13.7 million, or three cents a share, compared with a year-earlier profit of $26.5 million, or six cents a share. Excluding restructuring charges, a one-time charge to the devaluation of Venezuelan currency, and other items, earnings totaled 26 cents a share.

Net sales fell 4% to $2.43 billion.

Analysts polled by Thomson Reuters recently forecast earnings of 14 cents a share on $2.51 billion in sales.

Sales in the main beauty business fell 5% to $1.77 billion. Sales in Latin America--which accounts for the bulk of the company's business--were flat at $1.14 billion.

Last week, the company said chairman and longtime board member Fred Hassan resigned, continuing a leadership turnover at the company one year into Chief Executive Sheri McCoy's tenure. Avon named current board member Douglas Conant as its new chairman, effective immediately.

Shares ended Monday at $22.24 and were inactive premarket. The stock is up 3% in the last 12 months.

Write to Anna Prior at [e-mail]

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