Avon Posts 4Q Loss As Sales Slump, Costs Rise

Published February 14, 2012 3:27PM (EST)

NEW YORK (AP) — Despite Avon Products Inc.'s efforts to revive its business, the beauty products seller posted a fourth-quarter net loss as sales fell, costs rose and it marked down the value of a silver jewelry company acquired in 2010.

Avon has been struggling to improve results and wind up a long-running bribery investigation that began in 2008. The company has restructured and cut jobs. But its profit has shrunk over the past three years, and the bribery investigation has widened. To placate critics, in December the company said it would seek a replacement for longtime CEO Andrea Jung, who plans to remain chairman.

The New York company said Tuesday that it doesn't expect its margins — how much it keeps of revenue after costs — to improve this year.

In a call with investors, Jung said long-term financial goals will be discussed when a new CEO is announced. In the meantime, the company is going to focus on improving sales and managing costs in 2012, a "transition" year, she said.

"My main message is that the organization is not standing still during this transition period," she said. "Teams are moving forward and taking action where it makes full sense and thoughtfully tabling others where we should definitely wait."

Avon posted a loss of $400,000, break-even on a per share basis, for the three months ended Dec. 31. It earned $229.5 million, or 53 cents per share, in the prior-year period.

The company took a $166 million after-tax charge on its Silpada Designs Inc. unit, acquired in 2010, because the rising price of silver since then has hurt Silpada's margins and revenue, Avon said. Excluding that and restructuring charges, Avon said it earned 39 cents per share.

Analysts polled by FactSet expected earnings of 51 cents per share.

Revenue fell 4 percent to $3.04 billion from $3.18 billion as units sold dropped 2 percent and the company's head count of direct sellers shrank 3 percent. The results narrowly missed analysts' forecast of $3.1 billion.

Avon said higher commodity costs also weighed on its business.

But the stock rose 50 cents, or 2.9 percent, to $18.03 in morning trading Tuesday.

Investors perhaps expected poor results. The stock is down 7 percent since the company's last quarterly earnings report.

"We think many folks had suspected that fourth quarter would be weak, thinking that perhaps the lack of fundamental improvement in the quarter was what prompted the mid-December announcement that CEO Andrea Jung would be replaced," said Citi Investment Research analyst Wendy Nicholson.

The company, which is known in the U.S. for "Avon ladies" who go door to door selling its cosmetics, had also announced in October that the Securities and Exchange Commission is investigating its contact with financial analysts in 2010 and 2011.

The SEC also is reviewing Avon's own probe that began in 2008 into bribery by its employees in China. It has since spread to other countries and resulted in the firings of several executives, including Avon's vice chairman Charles Cramb.

On Monday a report in The Wall Street Journal, citing unnamed people familiar with the matter, said that federal prosecutors have presented evidence to a grand jury in their investigation into whether Avon Products executives broke foreign bribery laws. Avon declined to comment.

For the year, Avon's earnings declined 15 percent to $513.6 million, or $1.18 per share, from $606.3 million, or $1.39 per share.

Full-year revenue rose 4 percent to $11.29 billion from $10.86 billion.

The company expects to maintain its annual dividend of 92 cents per share this year.

Nicholson said that the naming of a new CEO or a resolution in the bribery investigation could help Avon's stock, which is down 45 percent since its 52-week high in May 2011. So she kept her "Buy" rating on the shares.

By Salon Staff

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