December 13, 2011 / 10:24 PM / 9 years ago

Avon to replace CEO Jung

(Reuters) - Avon Products Inc AVP.N is looking for a new chief executive to replace Andrea Jung, who has lost the confidence of Wall Street after a myriad of problems, including a federal bribery probe and weak sales in key international markets.

Andrea Jung, CEO of Avon Products Inc., accepts the Leadership in the Corporate Sector award during the Clinton Global Citizen Award ceremony marking the culmination of the Clinton Global Initiative in New York September 23, 2010. REUTERS/Lucas Jackson

Jung will remain as executive chairman of the company, and work with a committee of board directors to find an external CEO candidate, Avon said in a statement on Tuesday.

Avon shares rose 5.4 percent on the news in after-hours trading after falling by almost half this year.

“The stock has been cut in half this year,” Ali Dibadj, analyst at Sanford C. Bernstein, said. “The trust between investors and management has been severed. There have been a few times where expectations have been laid out there and have not been met.”

Avon in October said that the Securities and Exchange Commission was investigating the company’s contact during 2010 and 2011 with certain analysts and other representatives of the financial community.

The company also reported third-quarter profit that fell below analyst expectations, with Brazil weighing on earnings as the result of implementation of a new computer system, while tough economic conditions also hurt sales in other markets.

Jung has been Avon’s CEO since 1999 and is credited with helping to grow the company late 1990s and early 2000s, as it continued to expand, bringing the prospect of a career or even just some extra pocket money to women from South Africa to South Korea.

But in the past several years, Avon has turned in poor performances in key markets such as Brazil and Russia, poured tens of millions of dollars into its international bribery investigation and struggled to stem declines in a sluggish U.S. market.

Aside from saying in October that the SEC was conducting its own bribery probe, the company also said the commission was looking into whether the company violated disclosure laws in contacts with analysts and others.

Avon shares have fallen 44 percent this year, while the Standard & Poor's 500 Index .SPX is down only 2.5 percent.

Though the stock rallied on the announcement of a CEO change on Tuesday, analysts were skeptical about the impact of the move.

“What you can say is the company is going to look for a CEO who hopefully will be able to right-size the fundamentals. But it’s too soon to say anything about the turnaround itself,” BMO Capital Markets analyst Connie Maneaty said.

Jung is popular with the representatives who sell the company’s products, and at one time were known as “Avon Ladies.”

That popularity might be one reason Jung is staying on as chairman, Dibadj said.

“Andrea is extraordinarily good at working with the representatives, and letting them down in some sense, very hard, might not be the best business decision,” he said.

Jung’s successor will need to be somebody who can also inspire the representatives, but at the same time improve operations and set out a vision beyond the “boom and bust” cycle Avon has endured, he said.

Reporting by Brad Dorfman in Chicago. Additional reporting by Abhishek Takle in Bangalore. Editing by Gunna Dickson

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