Though The Fourth Quarter Might Still Show Weakness, Avon Products Is Doing All The Right Things To Revive Growth

Avon Products (NYSE:AVP) is slated to release its earnings on February 11th. The company’s persistent weak performance over 2015 might continue in the fourth quarter. However, what is noteworthy is that there have been several changes that might lead the beauty seller to a better future. Avon finally found an investor in Cerberus Capital, and after the restructuring of its business, the company has vowed to make a revival of performance. Towards that end, Avon has made some management changes and is also undertaking cost efficient initiatives in collaboration with Hewlett Packard. The steps are expected to bring about an improvement in Avon’s performance, but that might take some time to show.

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Avon’s Performance For The First Nine Months Of 2015

Avon’s revenues declined by 19% in the first nine months of 2015, to $5.3 billion. Brazil – the largest revenue contributing country for the company (~20% as of 2014) – ^[1] was one of the primary contributors to this weak performance. Brazil’s economic slowdown restricting the spending on beauty, combined with the country’s IPI tax (introduced in mid-2015), are some of the reasons for weak sales in the country. Avon’s North American region had been persistently suffering from attrition of representatives and a decline in demand. Finally, weak currencies have led to an erosion of over $350 million in Avon’s pre-tax income,  for the first nine months of 2015.

Avon Finally Found An Investor In Cerberus

In December 2015, after a long search for a buyer, Avon finally found one in private equity management firm, Cerberus Capital Management.  Cerberus invested $435 million into Avon and carved out Avon’s North American division into a separate entity by investing another $170 million in it. Avon sold 80.1% of its North American business to Cerberus. Avon had been striving to make a turnaround post the deal.

 HP Collaboration Might Lead To Cost Efficiencies

It seems that with an aim to revive its business, in January 2016, the company entered into a strategic collaboration with Hewlett-Packard to identify the cost-effective tools and processes in order to boost the its operational efficiency. This move might help Avon in adapting better to the beauty industry. As per the deal, Avon will set up a Security Operation Center in Hewlett-Packard’s international delivery hub. The beauty company will also launch a Global Service Desk with the help of remote support, data analytics, and self-service mechanisms, in order to improve the user’s experience. Moreover, the tech giant’s Global Network Operating Center can be used by Avon to offer network data services. Along with other such enhanced technological upgrades, Avon also intends to cut its global headcount. Though this might result in the company incurring a pre-tax burden of around $30 million, of which $20 million might be realized in Q4 2015, however, the partnership is expected to generate annual pre-tax savings of almost $10-$15 million, starting from 2019. ^[2]

Management Restructuring For 2016

Effective January 1 2016, the company’s chief for EMEA and Global field operations, John Higson, also has Latin America under his purview, with the combination of EMEA and Latin America. Fernando Acosta, who headed Northern Latin America and Global Marketing, now looks after the brand marketing and innovation aspects, including the company’s move towards social selling.  Jim Scully, erstwhile Avon’s Chief Financial officer, assumed the role of Chief Operating Officer. His responsibilities will include enterprise strategy, infrastructure, and the global supply chain. ^[3]

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1. Avon’s Annual Report, 2014 [↩]
2. Avon Inks Deal with Hewlett-Packard to Boost IT Structure, Yahoo Finance, Jan 11, 2016 [↩]
3. Avon’s Q3 2015 Earnings Transcript, Seeking Alpha, Nov 4, 2015 [↩]