Avon's Cost-Saving Plans on Track - Analyst Blog
April 09 2013 - 9:50AM
Zacks
The distressed global beauty
company, Avon Products Inc. (AVP) has moved ahead
with its previously announced target of bringing down costs by $400
million through 2016. The company has laid down plans to cut about
400 jobs globally and close down operations in Ireland. Apart from
this, Avon also intends to either restructure or cease its
operations in some underperforming markets mainly in Europe, the
Middle East & Africa region.
Management believes these actions
would help streamline operations by improving its focus on high
priority markets and activities, as well as enhance efficiencies.
The company expects these targets to be achieved by the end of
2013.
This Zacks Rank #1 (Strong Buy)
company expects to incur costs in the $35–$40 million (before
taxes) range from these initiatives, of which about $20 million
would be accounted in the first quarter of 2013. After full
implementation, these initiatives are expected to generate an
annualized saving of about $45–$50 million.
Of late, Avon has been facing
challenges on various fronts, including declining top and bottom
lines and highly-leveraged balance sheet.
In Nov 2012, Avon outlined some
strategic measures focused on accelerating top-line growth,
trimming costs and improving working capital. Management is in the
process of easing business issues and directing the company toward
its growth trajectory, thereby restoring its competitive position
among its peers like Revlon Inc. (REV),
L’Oreal SA (LRLCY) and The Est
(EL).
As part of its strategy, in Nov
2012, Avon slashed its quarterly dividend by 6 cents to 23 cents
per share. Management believes that the reduction in dividend,
coupled with efforts to improve working capital should ease the
financial burden on the company.
Moreover, in an effort to improve
its balance sheet, Avon successfully closed a public offering of
unsecured notes worth $1.5 billion having maturities of 3, 7, 10,
and 30 years in Mar 2013. This largest door-to-door cosmetic seller
is planning to utilize the net proceeds from refinancing activities
and $650 million of available cash to repay $2.190 billion of
outstanding debt. Moreover, the remaining funds under the
refinancing activities will provide financial flexibility to
support the company’s turnaround strategies.
We believe that the company’s
strategies are paying off, which is evident from its fourth-quarter
2012 operating results. After reporting dismal results over the
past 6 quarters, Avon posted better-than-expected total revenue and
earnings for the fourth quarter.
AVON PRODS INC (AVP): Free Stock Analysis Report
ESTEE LAUDER (EL): Free Stock Analysis Report
LOREAL CO-ADR (LRLCY): Get Free Report
REVLON INC-A (REV): Free Stock Analysis Report
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