* Avon sold 2 pct more items at end of 2012
* Number of sales reps up 1 pct
* No update on U.S. government probe
* Shares rise 20.3 percent
(Adds details on turnaround)
By Phil Wahba
Feb 12 Avon Products Inc's stock rose
more than 20 percent on Tuesday after the beauty products
company posted surprisingly strong earnings in the fourth
quarter, a sign CEO Sheri McCoy's turnaround plan is taking
Avon reversed sales declines in top markets like Brazil and
Russia, attracted more sales representatives and cut costs in
the fourth quarter. Its shares closed at $20.79. In May smaller
rival Coty Inc withdrew an unsolicited $24.75 per share bid to
McCoy, eschewing the flashy style of her predecessor Andrea
Jung, took the reins of the world's largest direct-seller of
cosmetics in April, after years of shrinking profits and market
share, and missteps that made selling its make-up, skin creams
and fragrances less lucrative for the "Avon Ladies" it needs.
In contrast to Jung, on whose watch Avon spent hundreds of
millions on botched turnaround efforts and became embroiled in a
ongoing U.S. probe into bribery overseas, McCoy has kept a low
profile. She prefers a deliberate, gradual approach and is
winning plaudits from Wall Street for being frank about the
depth of Avon's troubles and not promising instant solutions.
"We have a lot of work ahead of us but I am confident that
we will continue to make progress towards the financial goals
that we laid out for you," she said on a conference call, even
as she called the quarterly numbers "early signs of
stabilization" and expects the progress to continue.
One of those goals is achieving mid-single-digit percentage
revenue growth by 2016. In 2012, revenue fell 5 percent.
McCoy said she would provide further details on the next
steps in Avon's efforts at an industry conference next week.
The world's largest direct seller of beauty products also
said it sold 2 percent more items in the quarter that ended Dec.
31, and that the number of sales representatives increased 1
percent, halting at least for now a shrinking salesforce.
That helped Avon, known for signature products such as Skin
So Soft, report a stronger-than-expected profit.
"While there are still many challenges, there is also
fundamental improvement," BMO Capital Markets analyst Connie
Maneaty wrote in a note, pointing to rising sales in Latin
America, Europe and the Middle East - markets that account for
three quarters of Avon's business.
The company is being investigated by the U.S. government on
allegations employees bribed overseas officials a few years ago.
Avon did not provide an update on the probe on Tuesday.
BRAZIL RECOVERS, U.S. FLOUNDERS
In Brazil, its top market, revenue excluding the impact of
currency rose 10 percent as more sales reps came aboard,
reversing earlier declines. Revenue in Russia also improved,
rising 3 percent.
In those markets, Avon took simple steps such as introducing
products that were more in tune with what local customers want.
In Brazil, where Avon competes for reps with Natura
Cosmeticos SA, Avon is also offering them insurance,
provided they meet sales targets. Yet, McCoy said Avon was still
not out of the woods in that important market.
North America, a market where Avon still gets about 15
percent of sales, continues to be a drag. Revenue in the New
York-based company's home market fell 12 percent while the
salesforce shrank 13 percent, continuing a years-long decline.
When asked if Avon would ever consider dropping out of the
United States, McCoy said Avon is "committed" to it, calling it
important to the company's image.
Still, the shares' rise was something of a relief rally and
many said the company remained troubled.
"The U.S. is still imploding," said Ali Dibadj, a Sanford C.
Bernstein analyst. "There really is only Brazil that did well."
In Asia, the world's fastest-growing cosmetics market,
revenue was down 3 percent, hurt by declines in China.
Overall, revenue fell 1 percent to $3 billion in the fourth
quarter, in line with Wall Street's projections, according to
Thomson Reuters I/B/E/S.
The company is in the process of cutting $400 million in
selling, general and administrative costs per year and has cut
hundreds of jobs and exited markets like Korea and Vietnam.
Avon said the cost-cutting was on schedule.
Avon has a net loss for the quarter of $162.2 million, or 37
cents per share, compared with a loss of $400,000, or nil, per
share a year ago.
Excluding some one-time item, Avon had a profit from
continuing operations of 37 cents per share, beating Wall Street
analyst estimates by 10 cents.
Avon has more exposure than most Western companies to
Venezuela, where it gets 5 percent of its revenue.
Following the Venezuelan government's announcement that it
would devalue the country's currency 32 percent, Avon said it
expects a total of $100 million in various charges, including an
after-tax loss this year for the writedown of some assets.
(Reporting by Phil Wahba in New York; Editing by Chizu Nomiyama
and Maureen Bavdek)