Avon Announces Final Initiatives of the Restructuring Program Under Its Turnaround Plan
January 08 2008 - 8:00AM
PR Newswire (US)
Annualized Savings Now Expected to Reach Approximately $430 Million
Upon Full Implementation NEW YORK, Jan. 8 /PRNewswire-FirstCall/ --
Avon Products, Inc. (NYSE:AVP) today announced the final
initiatives of the restructuring program under its turnaround plan,
begun in late 2005. The company now expects to achieve annualized
savings of approximately $430 million once all initiatives are
fully implemented by 2011-2012, compared to the original objective
of $300 million. These savings are projected to reach $300 million
in 2009. The company now anticipates total costs to implement the
restructuring initiatives to be approximately $530 million instead
of $500 million, of which the company will have recorded
approximately $460 million through the fourth quarter of 2007 and
the remainder by the end of 2009. As a result, the company said
that it expects to incur a charge of approximately $120 million in
the fourth quarter 2007. Included in this charge are: restructuring
of some international direct selling operations, most significantly
in Germany; realigning supply chain operations in Western Europe
and Latin America; outsourcing call centers and transaction
processing functions; and several other minor initiatives. Costs
associated with previously announced restructuring initiatives are
also included in the fourth-quarter charge. Avon said that as a
result of the initiatives announced today approximately 4,000
positions would be impacted globally, with a net reduction totaling
approximately 2,400 positions when the initiatives are fully
implemented. Charles Cramb, Avon's Vice Chairman, Chief Finance and
Strategy Officer said, "With today's announcement we now expect the
annualized savings of our restructuring program to be approximately
$430 million when fully implemented, $130 million ahead of our
initial estimates." "Continuing transformation as part of a
turnaround mentality is now a 'way of life' for Avon as we enter
the third year of our turnaround. While we anticipate additional
initiatives to further improve organization effectiveness and drive
cost savings to fuel growth, they will not be reported as part of
our turnaround plan." Incremental PLS Charge Avon also announced
that under its Product Line Simplification (PLS) initiative, it has
finalized its analysis to define its optimal product assortment and
made decisions on exit strategies for non-optimal products. The
company will record a charge of approximately $110 million in the
fourth quarter, primarily for inventory write-offs resulting from
the exit decisions taken. In addition to the $430 million in
savings from the restructuring program, the company continues to
expect benefits from PLS to commence in the second half of 2008,
and to reach a full annualized run rate in excess of $200 million
by the end of 2009. Avon also said it does not anticipate any
further PLS inventory charges in the future. Summary of Latest
Restructuring Initiatives Direct Selling Restructuring. Avon said
that the fourth quarter 2007 will include costs to restructure some
of its international direct selling businesses, particularly in
Continental Europe and most significantly in Germany, over the next
two years. The actions are designed to dramatically reduce the
company's cost base and improve productivity. Actions include
reducing the overall number of employees, consolidating sales
zones, and reducing administrative and other overhead costs. Avon
said that it has entered into required formal consultation
processes with employee labor representatives. Global Supply Chain
Realignments. Also included in the fourth quarter 2007 charge are
costs to implement realignments of certain manufacturing and
distribution operations in Western Europe and Latin America. In
addition to costs announced today, Avon anticipates capital
investments of approximately $160 million over the next
three-to-four years to support these initiatives. In Western
Europe, Avon plans to reconfigure the manufacturing facility in
Neufahrn, Germany, leading to reduced positions. Additionally, the
company said that it will consolidate some distribution operations
in Continental Europe to its distribution center in Alcala de
Henares, Spain. In line with this, Avon said that it will phase-out
its current distribution branch in Neufahrn by early 2009. In Latin
America, Avon said that it plans to build a state-of-the-art
distribution center in Brazil to meet increasing demand in that key
growth market. The company said that it is evaluating potential
locations for the facility, and expects to announce a decision in
the first half of 2008. The new distribution center will feature
advanced order-picking technology to improve productivity and order
accuracy, along with automated systems that will streamline work
flows, resulting in cost efficiencies and improved service to
Representatives. Avon said that it expects the new Brazilian
facility to open in 2010. When fully operational, it will employ
approximately 1,300 and have capacity to ship 70% of Brazil's
overall unit volume. In line with this, the company said that it
plans to phase-out its current distribution site in Sao Paulo,
Brazil during 2011. Approximately 1,700 people are currently
employed at that facility. Also in Latin America, Avon announced
plans to close its manufacturing facility in Guatemala in late 2008
and transfer production to its existing plant in Celaya, Mexico.
The company said that it will continue to operate its distribution
facility in Guatemala. "With these actions, we continue to evolve
our global supply chain footprint to improve Avon's operating
effectiveness and cost structure, and importantly our service to
Representatives. These actions further strengthen the foundation
for driving Avon's sustainable, profitable growth," Mr. Cramb said.
Avon, the company for women, is a leading global beauty company. As
the world's largest direct seller, Avon markets to women in well
over 100 countries through over five million independent Avon Sales
Representatives. Avon's product line includes beauty products,
fashion jewelry and apparel, and features such well-recognized
brand names as Avon Color, Anew, Skin-So-Soft, Avon Solutions,
Advance Techniques, Avon Naturals, Mark, and Avon Wellness. Learn
more about Avon and its products at http://www.avoncompany.com/.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this release that are not historical facts or
information are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Words such as
"estimate," "project," "plan," "believe," "may," "expect,"
"anticipate," "intend," "planned," "potential," "expectation" and
similar expressions, or the negative of those expressions, may
identify forward-looking statements. Such forward-looking
statements are based on management's reasonable current assumptions
and expectations. Such forward-looking statements involve risks,
uncertainties and other factors, which may cause the actual
results, levels of activity, performance or achievement of Avon to
be materially different from any future results expressed or
implied by such forward-looking statements, and there can be no
assurance that actual results will not differ materially from
management's expectations. Such factors include, among others, the
following: -- our ability to implement the key initiatives of and
realize the projected benefits from our global business strategy,
including our multi-year restructuring initiatives, product mix and
pricing strategies, enterprise resource planning, customer service
initiatives, product line simplification, strategic sourcing
initiative, zero overhead growth and cash management, tax, foreign
currency hedging and risk management strategies; -- our ability to
realize the anticipated benefits (including our projections
concerning future revenue and operating margin increases) from our
multi-year restructuring initiatives or other strategic initiatives
on the time schedules or in the amounts that we expect, and our
plans to invest these anticipated benefits ahead of future growth;
-- the possibility of business disruption in connection with our
multi- year restructuring initiatives or other strategic
initiatives; -- our ability to realize sustainable growth from our
investments in our brand and the direct selling channel; -- the
inventory obsolescence and other costs associated with our product
line simplification program; -- our ability to achieve growth
objectives, particularly in our largest markets and new and
emerging markets; -- our ability to successfully identify new
business opportunities and identify and analyze acquisition
candidates, and our ability to negotiate and consummate
acquisitions as well as to successfully integrate or manage any
acquired business; -- the effect of political, legal and regulatory
risks, as well as foreign exchange or other restrictions, imposed
on us, our operations or our Representatives by governmental
entities; -- our ability to successfully transition our business in
China in connection with the resumption of direct selling in that
market, our ability to operate using the direct selling model
permitted in that market and our ability to retain and increase the
number of Active Representatives there over a sustained period of
time; -- the impact of substantial currency fluctuations on the
results of our foreign operations; -- general economic and business
conditions in our markets, including social, economic and political
uncertainties in Latin America, Asia Pacific, Central and Eastern
Europe and the Middle East; -- the risk of disruption in Central
and Eastern Europe associated with a change to a more rapid selling
cycle with more frequent brochures; -- a general economic downturn,
information technology systems outages, disruption in our supply
chain or manufacturing and distribution operations, or other sudden
disruption in business operations beyond our control as a result of
events such as acts of terrorism or war, natural disasters,
pandemic situations and large scale power outages; -- the risk of
product or ingredient shortages resulting from our concentration of
sourcing in fewer suppliers; -- the quality, safety and efficacy of
our products; -- the success of our research and development
activities; -- our ability to attract and retain key personnel and
executives; -- competitive uncertainties in our markets, including
competition from companies in the cosmetics, fragrances, skin care
and toiletries industry, some of which are larger than we are and
have greater resources; -- our ability to implement our Sales
Leadership program globally, to generate Representative activity,
to increase Representative productivity, to improve Internet-based
tools for our Representatives, and to compete with other direct
selling organizations to recruit, retain and service
Representatives; -- the impact of the seasonal nature of our
business, changes in market trends, purchasing habits of our
consumers and changes in consumer preferences, particularly given
the global nature of our business and the conduct of our business
in primarily one channel; -- our ability to protect our
intellectual property rights; -- the risk of an adverse outcome in
our material pending and future litigations; -- our access to
financing and ability to secure financing at attractive rates; and
-- the impact of possible pension funding obligations, increased
pension expense and any changes in pension regulations or
interpretations thereof on our cash flow and results of operations.
Additional information identifying such factors is contained in
Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2006, filed with the U.S. Securities and Exchange
Commission. We undertake no obligation to update any such
forward-looking statements. DATASOURCE: Avon Products, Inc.
CONTACT: Media, Jennifer Vargas, +1-212-282-5404, or Sharon Samuel,
+1-212-282-5322, Investors, Renee Johansen or Anita Bialkowska,
+1-212-282-5320, all for Avon Products, Inc. Web site:
http://www.avon.com/ http://www.avoncompany.com/ Company News
On-Call: http://www.prnewswire.com/comp/079575.html
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