Avon Products, Inc. (AVP)

AVP 
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Avon Products (AVP)

Q4 2011 Earnings Call

February 14, 2012 9:00 am ET

Executives

Amy Low Chasen -

Andrea Jung - Chairman of the Board and Chief Executive Officer

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

Analysts

Christopher Ferrara - BofA Merrill Lynch, Research Division

Dara W. Mohsenian - Morgan Stanley, Research Division

William Schmitz - Deutsche Bank AG, Research Division

Lauren R. Lieberman - Barclays Capital, Research Division

Wendy Nicholson - Citigroup Inc, Research Division

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

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

Alice Beebe Longley - Buckingham Research Group Incorporated

Constance Marie Maneaty - BMO Capital Markets U.S.

Javier Escalante - Consumer Edge Research, LLC

Nik Modi - UBS Investment Bank, Research Division

Presentation

Operator

Good morning. My name is Brook, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Avon's Fourth Quarter and Full Year 2011 Earnings Conference Call. [Operator Instructions] I'll now turn the conference over to Amy Chasen, Group Vice President, Investor Relation. Ms. Chasen, you may begin your conference.

Amy Low Chasen

Thank you. Thank you for joining us this morning. With me on the call are Andrea Jung, Avon's Chairman and CEO; and Kimberly Ross, Executive Vice President and CFO. Today, we're going to spend our time discussing topics we believe are most top of mind. Andrea will start with an update on our business review and some perspective on 2012.

Kimberly will then discuss her first impressions and her key areas of focus. We will not be reviewing the quarter or the year in detail but instead have posted relevant data in a deck on the Investor Relations section of our website, and we'll be happy to answer your questions in the Q&A session later.

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 Andrea.

Andrea Jung

Thanks, Amy. Good morning, everybody. With me on the call is Kimberly Ross, who I'm very pleased is here today to share her first thoughts and observations, as well as our priorities for 2012. As all of you know, Kimberly joined Avon at the beginning of December from Ahold. Many of the business challenges she successfully dealt with there have application to Avon, and I have no doubt in the short time we've already worked together that her experiences will be hugely beneficial to address the opportunities for improvement here at Avon. So I know you'll join me in welcoming her to the company and to this call.

Let me just begin with a quick comment on leadership transition since I haven't spoken to you live since my announcement last December. This is a time of tremendous change for the company, and my critical priority is providing stability and day-to-day leadership as we continue to motivate and focus our 40,000 associates and our millions of representatives. Their full engagement is essential at this juncture, and I'm highly encouraged by the collective sense of urgency and commitment in every market around the Avon world as we keep the entire organization focused on reaccelerating growth and getting this business back on track.

The CEO search is underway. And in the interim, we continue to aggressively drive the end-to-end operational and financial review of the business. As a reminder, we began a full deep dive assessment in December, and that major work continues with the appropriate speed, rigor and strong external support. Kimberly and I will share a little insight where we're able to at this juncture, but as we said in the press release this morning, I have made the obvious decision to delay the review with all of you. It clearly makes sense to wait until a new CEO is on board and takes the appropriate time before sharing longer-term financial and operating objectives for 2013 and beyond.

In the meantime, my main message is that the organization is not standing still during this transition period. Teams are moving forward and taking action where it makes full sense and thoughtfully tabling others where we should definitely wait. While I am deferring decisions that have strategic impact for the longer term, we are making decisions that are necessary to keep the business recovery moving forward.

So an example of an organizational decision I will defer, whether or not to appoint a Chief Operating Officer, obviously important to wait and determine with the new CEO, given his or her strengths and operating philosophy. On the other hand, the biggest example of actions we will move forward with center around costs. Kimberly and team are intensely focused on identifying cost reduction opportunities so that we can execute as soon as possible. We are close to completing the first phase of identifying cost opportunities focused on headcount, as well as non-headcount areas, and we'll share early thoughts on this.

In terms of 2012 and how we are operating the business in the near term, our priorities are improving top line performance, cost management and cash generation. After a challenging 2011 where full year revenues were up 1% in constant dollars, the priority is restoring revenue growth. Direct selling is a momentum business. However, sustainable growth will take time, and there are still factors of macroeconomic weakness and internal volatility over the next several quarters.

The negative impact of commodities, foreign exchange and wage inflation will also continue to pressure results. In a year of transition, therefore, we're not planning for margin recovery in 2012. In terms of cash generation, we continue to focus on working capital improvement. And as you read this morning, we announced the dividend for 2012, which maintains the current level at $0.92.

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