Avon's Cost-Saving Plans on Track - Analyst Blog

The distressed global beauty company, Avon Products Inc. ( AVP ) has moved ahead with its previously announced target of bringing down costs by $400 million through 2016. The company has laid down plans to cut about 400 jobs globally and close down operations in Ireland. Apart from this, Avon also intends to either restructure or cease its operations in some underperforming markets mainly in Europe, the Middle East & Africa region.

Management believes these actions would help streamline operations by improving its focus on high priority markets and activities, as well as enhance efficiencies. The company expects these targets to be achieved by the end of 2013.

This Zacks Rank #1 (Strong Buy) company expects to incur costs in the $35-$40 million (before taxes) range from these initiatives, of which about $20 million would be accounted in the first quarter of 2013. After full implementation, these initiatives are expected to generate an annualized saving of about $45-$50 million.

Of late, Avon has been facing challenges on various fronts, including declining top and bottom lines and highly-leveraged balance sheet.

In Nov 2012, Avon outlined some strategic measures focused on accelerating top-line growth, trimming costs and improving working capital. Management is in the process of easing business issues and directing the company toward its growth trajectory, thereby restoring its competitive position among its peers like Revlon Inc. ( REV ), L'Oreal SA ( LRLCY ) and The Est ( EL ).

As part of its strategy, in Nov 2012, Avon slashed its quarterly dividend by 6 cents to 23 cents per share. Management believes that the reduction in dividend, coupled with efforts to improve working capital should ease the financial burden on the company.

Moreover, in an effort to improve its balance sheet, Avon successfully closed a public offering of unsecured notes worth $1.5 billion having maturities of 3, 7, 10, and 30 years in Mar 2013. This largest door-to-door cosmetic seller is planning to utilize the net proceeds from refinancing activities and $650 million of available cash to repay $2.190 billion of outstanding debt. Moreover, the remaining funds under the refinancing activities will provide financial flexibility to support the company's turnaround strategies.

We believe that the company's strategies are paying off, which is evident from its fourth-quarter 2012 operating results. After reporting dismal results over the past 6 quarters, Avon posted better-than-expected total revenue and earnings for the fourth quarter.

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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.

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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