Avon-Natura tie-up to yield more cost savings: CEO

SAO PAULO/NEW YORK (Reuters) - Brazilian cosmetics group Natura & Co NTCO3.SA on Monday lifted its cost savings target for its takeover of Avon Products AVP.N as it begins integrating the world's fourth-largest beauty group.

FILE PHOTO: The logo of Natura is picture at the company headquarters in Sao Paulo, Brazil December 19, 2019. REUTERS/Amanda Perobelli

The company now sees savings of $200 million to $300 million per year within the next 36 months, more than the $150 million to $250 million estimated in May, when it agreed to buy rival Avon through a share swap.

“We want to use part of that to reinvest in growth,” especially when it comes to reviving the Avon business, Natura & Co’s Chief Executive Officer and Chairman Roberto Marques told Reuters. “In terms of investment: branding, product development and digitalization will be core,” he added.

Avon has seen sales decline over the last several years due to a lack of innovation and an inability to stand up to bigger rivals like Estee Lauder Cos EL.N and L'Oreal SA OREP.PA.

Natura & Co is not ready to disclose the deal’s impact on revenue, as the company is “still quantifying potential opportunities as we speak,” Marques told analysts and investors on a call.

João Paulo Ferreira, CEO for Natura & Co in Latin America, added that Avon’s commercial structure and brand management will remain separate, though some of its industrial and distribution facilities might be used for other brands.

“We need to be sharper on the role of each brand. It’s going to take a few months to have a combined strategy to allow each brand to be stronger,” Ferreira said on the call.

By acquiring Avon, Natura & Co, which also owns the Natura, Aesop and The Body Shop brands, strengthened its door-to-door sales model, increasing its third-party “consultants” to 6.3 million globally from 1.7 million. The 50-year-old company has also expanded its footprint to reach some 200 million consumers in 100 countries compared with 73 countries before.

Marques, who joined Natura’s board four years ago and spearheaded a global expansion including the acquisition of The Body Shop in 2017, said the cost savings with Avon will be captured mostly in Brazil and other Latin American countries.

He noted that Natura & Co is likely to provide more details on the integration of the companies in presentations to investors on April 24, when it will disclose earnings targets.

Natura & Co will host a second event in New York in October or November to unveil a combined strategic business plan, Marques said.

Shares of Natura & Co rose as much as 5.7% to an all-time high of 43.33 reais in early trading before erasing gains.

Analysts at Citi recognized the positive message from executives, but flagged the risks of a costly and complicated integration process ahead.

“We clearly believe in the synergies, which might be even larger; on the other hand, complexity remains relatively high and expenses to drive the synergies appear to be more front-loaded,” they wrote in a report after the call.

Reporting by Gabriela Mello in Sao Paulo and Melissa Fares in New York; Editing by Paul Simao and Andrea Ricci