Avon Products: Not Enough?


B. Riley’s Linda Bolton Weiser “applaud[s]” Avon Products (AVP) for the steps it laid out last night to turn around the struggling beauty-products maker–including elimination 2,500 positions–she isn’t ready to change her Neutral ratings. She explains why:

Associated Press

Avonannounced additional details on the execution of the three-year transformation plan that was outlined at its 1/21 investor day.Avon announced it is revising its commercial business to ensure that all markets have consistent roles, responsibilities and processes, which will drive significant cost efficiencies and improved effectiveness.Avon also announced it would further streamline its corporate functions to align with the current and future needs of the business.Avon will reduce its corporate infrastructure and will transition, over time, the location of its corporate headquarters from New York to the U.K., where it has significant commercial operations. To realize benefits of scale, core enterprise functions will be located in the U.K. with direct connection to the operations throughout the world. As a result of these operating model changes,Avon will reduce its headcount by about 2,500 positions across multiple geographies, including both filled and open positions.Avon expects to record pretax charges of about $60MM in 1Q16, to be comprised primarily of employee-related costs.Avon expects to realize pretax savings of about $30MM in 2016 from a headcount reduction of about 1,700 and expects to achieve annualized pretax savings of about $65MM-$70MM beginning in 2017. In addition,Avon expects to realize annualized pretax savings of about $20MM in 2016 related to the elimination of open positions. These cost savings are not incremental to, but are included in, the $350MM cost reduction program (over three years) discussed byAvon on 1/21. At the analyst meeting,Avon said it expects $70MM of realized cost savings in 2016, so this announcement identifies about $50MM of the $70MM expected in 2016.Avon will maintain its current facilities in Suffern, NY and Rye, NY and will continue to be incorporated in New York. The North American business, which has been separated from the rest of the company and is 80% owned by private equity firm Cerberus, is not impacted by any of these actio! ns. While we applaud the company for embarking on another cost reduction program, we continue to remain on the sidelines because managements plan does not include details on how potential future FX impacts will be offset.

Investors are sure worried about something: Shares of Avon Products have dropped 8% to $4.03 at 2:33 p.m. today.

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