Avon’s Bribery and Fair Disclosure Probes Force Jung to Examine Internal Practices
Avon Products (NYSE:AVP) is being investigated by the SEC for questionable contact with financial analysts, which could have violated the Fair Disclosure Regulation of 2000. This latest subpoena is in addition to the SEC investigation of a possible violation of the Foreign Corrupt Practices Act, which caused the termination of four executives in April 2010. Avon sells its products to the final consumer through direct selling, which separates it from peers like L’Oreal (PINK:LRLCY), Procter & Gamble (NYSE:PG), Estee Lauder (NYSE:EL) and Unilever (NYSE:UL) that also sell beauty and personal care products.
See our full analysis for Avon here
Investigation Derails Recovery
The latest investigation has given investors serious doubts about the ability of Chairman and CEO Andrea Jung to stabilize the company. Avon has had multiple corporate restructurings and extensive management changes since 2005. Sales in North America have been slowing as sales representatives leave and fewer women remain at home in the U.S. to receive them. [1] In more traditional markets overseas, such as Russia and Venezuela, the number of representatives continues to grow.
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The majority of Avon’s sales currently come from foreign markets and benefited from the weaker U.S. Dollar in recent months, but an internal computing system change disrupted a lot of the business and affected sales in key market Brazil. [2] However, the units sold decline both overseas and at home could prove a major problem for the company’s overall profitability.
The internal adjustments and money necessary to deal with the SEC probes could spell difficulty for Avon, which is already operating with a reduced margin. Waning consumer confidence in management’s ability to run the company may also prove to be a downward indicator for the stock. However, strong products and a strong presence in emerging markets could offset the internal problems and hold the company’s profitability.
The Trefis analysis of Avon indicates a stock price of $31, a premium of 55% over the current market price of near $20.
Understand How a Company’s Products Impact its Stock Price at Trefis
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