Avon Update: Changing of the Guard Proves Difficult, Jung Could Impede Recovery

by Trefis Team
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Avon Products
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Struggling with a poor recovery, worsening profitability, a disruptive ERP implementation in Brazil and an SEC investigation into corruption charges, Avon Products (NYSE:AVP) stock hit a 52-week low last month after its disappointing 3Q results. It also withdrew its full-year revenue guidance for FY 2012. The company has recently initiated several top-level management changes to give the troubled company fresh direction and boost investor confidence, including a change of guard after CEO Andrea Jung stepped down. Will the new management’s new plan impress investors who are waiting for the company to provide them an operational and financial update next month.

Avon is the largest direct selling organization in the world and has an active global sales force of over 6.2 million sales representatives who sell directly to consumers for beauty and skincare products, fashion accessories, decorative housewares and nutritional supplements. It competes Procter & Gamble (NYSE:PG), L’Oreal (PINK:LRLCY) and Revlon (NYSE:REV).

View our detailed analysis for Avon’s stock here

High Hopes From The New Management

With waning investor confidence over the management’s ability to stabilize the business, Avon had been under a lot of pressure to revamp its top management. Last month, it announced the separation of roles of Chairman and Chief Executive Officer and is looking for a new CEO to soon succeed the current Chairman-CEO Andrea Jung.

Avon has already made some major management changes, bringing in Chief Financial Officer Kimberly Ross in late November and Fernando Acosta, president of its large Latin America business, in the beginning of December. Avon climbed 9% the day Jung announced plans to step down.

However there are concerns that Jung’s refusal to leave the company altogether, might impede its recovery since Jung plans to remain as executive chairman for at least two years. Two former CEOs of Avon have reportedly supported the view that she needs to quit her role with the firm altogether so that a new CEO does not have to deal with justifying actions that counter Jung’s past moves. This might also make it difficult to adjust the firm’s strategy and execution as Jung wrote an internal memo to employees promising that she will remain heavily involved. [1]

The company missed its targets last quarter by a wide margin and no longer expects to achieve mid-single-digit sales growth and 50-70 basis points of operating margin expansion in 2011. It made no 4Q predictions and is fully assessing its long-range business plan and is likely to provide an operational and financial update to investors in the first quarter of 2012. Read more here – Avon’s Sinking Stock Worth $18.

We have a revised $18 Trefis price estimate for Avon stock, 1% ahead of the current market price.

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Notes:
  1. Former Avon CEOs Criticize Jung, WSJ, December 22, 2011 []
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