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Avon restructuring update

This article was originally published in The Rose Sheet

Executive Summary

Avon will incur a $90 mil. charge in the second quarter of 2009 related to restructuring activities, firm announces July 22. About $77 mil. is attributed to costs to implement realignments of supply-chain manufacturing operations in North America, Western Europe and Central and Eastern Europe, while $13 mil. relates to changes out of Avon's 2005 restructuring program. Effort will result in the elimination of approximately 1,200 positions when the initiatives are fully implemented by 2012-2013. In North America, the restructuring will involve closing Avon's Springdale, Ohio facility by 2012 to shift manufacturing to Morton Grove, Ill., Celaya, Mexico and contract manufacturers. Avon will also streamline operations in Russia, Latin America and Western Europe. Once implemented, the initiatives will reflect nearly half the costs required to put Avon's 2009 restructuring program into place. "We are on track to achieve our stated goal of approximately $200 mil. in total annualized savings by 2012-2013, with costs to implement all initiatives expected to be in the range of $300-$400 mil.," says Charles Cramb, Avon's vice chairman, chief finance and strategy officer. Firm announced new targets in its ongoing restructuring initiative in February (1"The Rose Sheet" Feb. 23, 2009, In Brief)

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Avon president moves on: After a "highly successful," five-year career with Avon, Elizabeth Smith is leaving the company, effective Oct. 30, in pursuit of a chief executive officer position. Smith came to "the company for women" as executive VP and brand president in January 2005, and seven months later took control of Avon's North American business. She has been president of the firm since September 2007, overseeing its Marketing, Sales, Supply Chain and IT divisions and playing "an instrumental role in repositioning the business for long-term sustainable growth," according to Sept. 17 release. Avon announced in July that with its ongoing efforts the company remains on track to achieve roughly $200 million in annualized savings by 2012-2013 (1"The Rose Sheet" July 27, 2009, In Brief). "Over the past five years, Liz has partnered closely with me as we have executed the company's turnaround plan," says CEO Andrea Jung. "Most recently as president, she has successfully driven the global integration of our key business processes and technology, helping us develop the requisite infrastructure and wiring to capitalize on our global size and scale." Smith's units now report to Jung

Sales & Earnings In Brief

Avon: Direct seller is taking aggressive steps to mitigate a 65% decline in second quarter profit, CEO Andrea Jung told analysts during a July 30 earnings call. For the quarter, net income was $83 mil., negatively impacted by restructuring charges and currency fluctuations, firm reported. Avon recently announced it was taking a $90 million charge in the second quarter to fund its 2009 restructuring plan, which includes the elimination of 1,200 positions (1"The Rose Sheet" July 27, 2009, In Brief). During the period, firm's active representatives base grew by 11%. "We're committed to bold and speedy actions to ensure that we drive margin expansion over the longer term," Jung said. The exec anticipates potential easing of currency issues in the back half of the year. Total revenue for the period declined 10% to $2.5 bil., but grew 5% on a local-currency basis. On a reported basis, fragrance and color cosmetics declined 9%, personal care fell 10% and skin care revenues were down 12%

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