Avon to Cut 600 Jobs as Part of Cost Saving Initiative - Analyst Blog


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Going ahead with its previously announced $400 million cost saving initiative, the troubled beauty company, Avon Products Inc. ( AVP ) yesterday announced that it will lay off another 600 employees globally. At the end of 2013, the company had 36,700 employees working worldwide. This action includes job cuts in the North America business unit and eliminating positions in the corporate organization.

Overall, the company expects to incur net charges of nearly $45-$50 million (before tax) from these initiatives, of which $40 million is likely to be recorded in the second quarter of 2014. Annualized cost synergies arising from the initiative are expected to range between $50 and $55 million before tax, contributing significantly to the company's cost-savings target of $400 million by the end of 2016.

This is the fourth time the company has made layoffs since the announcement of its cost saving initiative in Nov 2012. Until now, the company had cut about 1,500 jobs in Dec 2012, 400 jobs in Apr 2013 and 650 positions in Dec 2013. Simultaneously, the company ceased its operations in the underperforming markets of South Korea, Vietnam and Ireland.

Apart from this, the door-to-door cosmetics seller, in Dec 2013 stopped the global rollout of the software supplied by SAP AG ( SAP ) under its SMT project after it failed to impress the company's sales representatives in Canada. The SMT project, launched in 2009, was designed to enhance the company's order management system and facilitate communication with its sales persons.

Further, the company expects that including the recent job cuts, it will realize approximately $240 million to $250 million of annualized savings (before tax) through the restructuring actions taken so far.

Avon's strategic measures formulated in Nov 2012 are focused on accelerating top-line growth, trimming costs and improving working capital to revive the company from ongoing challenges. Management is in the process of easing business issues and directing the company toward higher growth, thereby restoring its competitive position among peers like Revlon, Inc. ( REV ) and The Est ( EL ).

The challenges faced by this Zacks Rank #5 (Strong Sell) company were reflected in its first-quarter 2014 financial results. The company's earnings of 12 cents per share in the quarter declined nearly 54% year over year and missed the Zacks Consensus Estimate of 20 cents primarily due to weak top-line performance.

Total revenue dropped more than 11% year over year to $2,183.6 million and fell short of the Zacks Consensus Estimate of $2,240.0 million primarily due to loss of active representatives, declining volume and unfavorable foreign currency translations.

The shares of this direct selling beauty products company fell nearly 1.7% in yesterday's trading session and closed trade at $14.69. So far in the year, shares have plunged approximately 13.2%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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