Avon Products, Inc. (AVP)

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Avon Products (AVP)

Q4 2012 Earnings Call

February 12, 2013 9:00 am ET

Executives

Amy Low Chasen

Sherilyn S. McCoy - Chief Executive Officer and Director

Kimberly A. Ross - Chief Financial Officer and Executive Vice President

Analysts

Christopher Ferrara - BofA Merrill Lynch, Research Division

Lauren R. Lieberman - Barclays Capital, Research Division

William Schmitz - Deutsche Bank AG, Research Division

Wendy Nicholson - Citigroup Inc, Research Division

Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division

Joe Lachky - Wells Fargo Securities, LLC, Research Division

Constance Marie Maneaty - BMO Capital Markets U.S.

Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division

Gregory Hessler - BofA Merrill Lynch, Research Division

Javier Escalante - Consumer Edge Research, LLC

Leigh Ferst - Wellington Shields & Co., LLC, Research Division

Linda Bolton-Weiser - Caris & Company, Inc., Research Division

Nik Modi - UBS Investment Bank, Research Division

Presentation

Operator

Good morning. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to Avon's Fourth Quarter and Full Year 2012 Earnings Conference Call. [Operator Instructions] I'll now turn the conference over to Amy Chasen, Group Vice President, Investor Relations.

Ms. Chasen, you may begin your conference.

Amy Low Chasen

Good morning, and thank you for joining us to review Avon's fourth quarter and full year results. With me today on the call are Sheri McCoy, Avon's CEO; and Kimberly Ross, our Executive Vice President and CFO.

Sheri will make some introductory comments and then Kimberly will take you through our results and provide preliminary color on our outlook. Then we'll have our usual Q&A session.

With that, I refer you to the cautionary statement in today's earnings release, as well as to our non-GAAP reconciliation, which is available on the Investor Relations section of our website. As usual on the call, we will focus on these adjusted non-GAAP financial measures.

I'll now hand the call over to Sheri.

Sherilyn S. McCoy

Thank you, Amy. Good morning. By now you've seen our press release with results for Avon's fourth quarter and 2012. As I said in the release, the business is showing early signs of stabilization, which is good. We have a lot of work ahead of us, but I'm confident that we'll continue to make progress toward the financial goals that we laid out for you in the third quarter call, achieving mid single-digit revenue growth and an adjusted low double-digit operating margin by 2016.

My remarks this morning will be brief as we look forward to seeing many of you at CAGNY next week. At CAGNY, I will provide you with more perspective on our plans to return Avon to growth. But this morning, I wanted to reflect for a moment on 2012.

I do believe we are beginning to gain traction in key areas and the organization is engaged and working hard against our priorities. Let me give you a sense of where I'm seeing progress. These fall mostly into the areas of market performance, cost management and talent development. First, we've delivered improved performance in some of our key geographic markets. In Brazil, we've strengthened the management team and they are making important improvements in the business. As I've said before, this is a very management-intensive business and it is critical that we have strong leadership teams on the ground. There is substantial work to be done to stabilize and then consistently grow Brazil. But the Avon Brazil team is making progress. They are creating locally relevant product offerings with improved marketing and merchandising, and importantly, they've made substantial progress on inventory management and have built improved processes in this area. And they continue to address service issues.

Likewise in Russia, we have a very strong team and the business is now moving in the right direction. We have a good pipeline of new products and the Avon Russia team has taken an innovative approach to enhancing the representative experience.

On the other hand, U.S. is not delivering the results we need. We continue to work through the process of redistricting and are also increasing focus on improved marketing execution. And we've taken action to reduce costs and improve efficiencies, but the business results remain weak.

While the U.S. team is working hard to address the situation, clearly this is performance that needs to be improved. As I've said before, we are committed to doing whatever it takes to fix our U.S. business, working aggressively to put an effective stabilization plan in place.

Next, in the area of cost management, we've become much more disciplined and I'm seeing improvement across the organization. Importantly, we've also made strides in inventory management and working capital. We've completed the initial actions of our $400 million cost management initiative. This included a reduction of headcount of approximately 1,500 and the closure of several facilities, including the Pasadena and Atlanta distribution centers in the United States. And we've exited 2 underperforming markets: South Korea and Vietnam.

I'm pleased to say that we completed this initial round of actions with minimal disruption to the business and we are continuing to aggressively address cost in the area of both SG&A and cost of goods sold.

As we announced in late January, we've appointed a new Senior Vice President of Supply Chain and Business Transformation, Dave Powell. In addition to managing the supply team -- supply chain, Dave will be leading business transformation efforts to ensure we hit our cost management targets and we've put in place the processes to ensure those savings are sustainable. Dave has a very strong track record of delivering results and I'm thrilled that he's joined my team. Dave joins a number of other strong additions to Avon's executive team. And all in all, I have a good management team in place with a mix of direct sales and consumer products experience. And I can't emphasize enough the importance of building strong leadership and a robust talent pipeline.

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