By Phil Wahba
Feb 13 Avon Products Inc said on
Thursday it could end up paying as much as $132 million to
settle a U.S. bribery probe into its efforts to develop new
markets, the first time the beauty-products company has given an
estimate for a penalty.
While Chief Executive Officer Sheri McCoy said Avon has made
"significant" progress in talks with the U.S. Securities and
Exchange Commission and Department of Justice and has enough
money to pay for any settlement, the company warned there were
no assurances it would reach a deal.
The world's largest direct seller of beauty products also
reported another quarter of disappointing results, with
lower-than-expected revenue caused by a sales decline in the
emerging markets it Avon has bet on to make up for dwindling
Shares fell nearly 1 percent at $14.92 in late-morning
The U.S. government's investigation began in 2011, following
an internal probe by Avon that started in 2008 into allegations
of improper payments in China. Avon's own probe has already cost
the company about $300 million.
Avon said the deal to settle the Foreign Corrupt Practices
Act investigation could range between $89 million and $132
A settlement at the high end of that range would not crack
the top 10 largest settlements, but would be one of the largest
from an U.S. company, according to a list from a popular blog on
the law, FCPA Blog.
New York-based aluminum producer Alcoa Inc agreed
last month to pay $384 million in sanctions to resolve charges
it paid millions of dollars in bribes to officials in Bahrain.
SLOWER THAN EXPECTED
McCoy took the reins almost two years ago with a promise to
turn around the company. In that time, Avon has exited
unprofitable markets like South Korea and Vietnam, brought in
new executives, including a new head for its Asia Pacific
division, and implemented a program to cut costs by $400 million
But Avon has continued to face stiff competition in markets
like Russia, Brazil and Mexico. It has also struggled with an
exodus of "Avon Ladies" sales representatives in the United
States, frustrated by a computer system that has made it
difficult to place orders, track them and collect commissions.
"Driving improvement has been more challenging and has taken
longer than I had anticipated," McCoy told analysts on a
Revenue dropped 10 percent to $2.67 billion, while analysts
expected $2.75 billion, according to Thomson Reuters I/B/E/S.
Excluding the impact of foreign exchange, sales fell 4 percent.
During the quarter ended Dec. 31, Avon sold 10 percent fewer
items, and the size of its sales force shrank 5 percent after
showing signs of stabilizing earlier in 2013.
In Russia and Mexico, two major markets, revenue declined
and could slip further in future quarters as the number of sales
representatives in both markets fell.
In North America, Avon's business continued to degenerate,
with sales of beauty products down 25 percent, and 17 percent
fewer representatives. In China, Avon's deterioration
accelerated compared to recent quarters and sales fell by half.
McCoy said fixing Avon's U.S. business is "at the top of my
agenda" and will lay out her plan in greater detail at an
industry conference next week.
A bright spot was Brazil, Avon's top market, where sales
rose 6 percent, stripping out the impact of foreign exchange.
Avon's net loss narrowed to $69.1 million, or 16 cents per
share, from $162.2 million, or 37 cents per share.