Avon Products Inc. reported disappointing second-quarter results today as it continues settlement talks relating to a U.S. bribery probe.
Avon’s net income fell from $206.2 million to $61.6 million, a decrease of 47 cents per share from a year earlier. With the exception of a few items, profits totaled 20 cents per share, 2 cents lower than analysts had predicted.
Avon, the company behind popular brands such as Skin so Soft and mark cosmetics, recently brought Sherilyn McCoy on board as chief executive officer to turn things around.
“Avon’s second-quarter financial results are not good and they reflect the complex challenges that Avon faces,” said McCoy, a former Johnson & Johnson executive, in a statement. “It will take time, but I am confident that we can turn the business around and reach a point of sustainable growth.”
McCoy recently held a conference call with investors and explained her priorities for the company. She said she thought the company had been off target in its move to sell higher end items. She also felt that Avon had stopped being competitive in its sales model, not paying its representatives enough.
“As the company tried to course correct, multiple restructurings caused energy to become internally focused rather than externally focused on the market and our competition,” she added.
In the same call, McCoy explained her business plan to improve Avon’s product line, more competitively market its products, pay its sellers more, cut costs and invest in technology.
And although Avon’s direct-selling model has been questioned by business analysts in the technological age, McCoy defended the model.
“The direct selling model is extremely effective in many markets and growing mid-single digits globally,” she said.
At the same time, Avon is in its fifth year working to settle an investigation into possible bribery of foreign officials, violating the Foreign Corrupt Practices Act. In 2008 Avon began investigating charges of bribery by its employees in China. Since then, similar allegations have been made against Avon employees in other countries, and the U.S. Securities and Exchange Commission and the Justice Department have gotten involved. Based on Avon’s internal investigations, five executives were removed in January 2011.
During the second quarter Avon was able to escape a $10.7 billion buyout attempt from Coty Inc., a smaller rival fragrance company, which markets fragrances from Beyonce Knowles and Heidi Klum, among others. Continued losses, however, are likely to result in additional attempts from other rival companies.
After the morning announcement, Avon shares fell 34 cents, or 2.2 percent.
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Source:
http://www.capcredit.com/avon-profits-plummet-as-bribery-investigation-continues-032/