(Adds details on proposed FCPA settlement)
By Phil Wahba
May 1 Avon Products Inc's quarterly
results on Thursday showed just how hard it will be for the
direct seller of beauty products to turn itself around, with big
setbacks in key markets like Russia, Latin America and the
Shares fell 12.6 percent to $13.36 in afternoon trading. The
company also announced it agreed to pay the U.S. government $135
million to settle a multiyear overseas bribery probe, under a
Chief Executive Officer Sheri McCoy can scarcely afford the
distraction of such an investigation at a time she is struggling
to fix Avon two years into her term.
"A turnaround looks to be further off than either we or
management had expected," BMO Capital Markets analyst Connie
Maneaty said in a research note.
It was the second quarter in a row of poor results after
signs in early 2013 that McCoy's turnaround was taking hold.
The 128-year-old company has been bedeviled by different
problems in different markets. It has responded with steps such
as introducing market-specific products in Russia and Mexico,
and fixing a computer system that had stymied Brazilian sales
representatives in getting their commissions.
In the United States, it is aggressively courting the
Avon has also exited markets such as Vietnam and South
Korea, while undertaking $400 million-a-year cost cuts.
But the benefits of its initiatives have been slow in
Sales fell 11.1 percent to $2.18 billion in the first
quarter ended March 31, compared with analysts' expectations of
$2.21 billion. Excluding the effects of currency fluctuations,
the decline would have been 3 percent.
Globally, Avon sold 6 percent fewer items, and the size of
its "Avon Ladies" sales force fell 4 percent.
Brazil, Avon's largest market, was a bright spot, with sales
rising 5 percent, excluding the impact of currency.
But in North America business continued to degenerate, with
sales down 22 percent and with 18 percent fewer representatives.
In Mexico, once a promising market, revenue fell 8 percent,
while in Russia, it dropped 11 percent, excluding currency.
Avon said its net loss widened to $168.4 million, or 38
cents per share, from $13.7 million, or 3 cents per share, a
year earlier, which it incurred costs from exiting markets.
Adjusted net income from continuing operations came to 12
cents a share. That was 9 cents below what analysts expected,
according to Thomson Reuters I/B/E/S.
POTENTIAL FCPA DEAL
The cost of the settlement of the bribery probe, subject to
a final agreement and approval, would be in fines, disgorgement
and prejudgment interest, split roughly evenly between the U.S.
Department of Justice and the Securities and Exchange
Under the settlement, the DOJ would defer criminal
prosecution for three years in exchange for Avon's agreeing to
have a compliance monitor; that could be replaced after 18
months by Avon's agreeing to self-monitor and reporting
obligations for another 18 months.
If there were no further violations during that time, the
charges against Avon would be dismissed.
A settlement of $135 million would be one of the largest
from a U.S. company, according to a list from a popular blog on
the law, FCPA Blog.
The government's investigation into potential violations by
Avon of the Foreign Corrupt Practices Act began in 2011,
following the company's internal probe that started in 2008 into
allegations of improper payments in China.
Avon's own probe has cost the company about $300 million.
(Reporting by Phil Wahba in New York; Editing by Lisa Von Ahn
and Leslie Adler)