Avon Products Inc (AVP.N) 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 U.S. sales.
Shares fell nearly 1 percent at $14.92 in late-morning trading.
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 million.
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 (AA.N) 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 a year.
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 conference call.
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 December 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.
(Reporting by Phil Wahba in New York. Additional reporting by Aruna Viswanatha in Washington, D.C.; Editing by Lisa Von Ahn and Jeffrey Benkoe)