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Avon Products Inc. has entered the final stretch of its more than half-billion-dollar restructuring plan.
The direct seller on Tuesday detailed the last round of cost-cutting initiatives under its ongoing turnaround plan, which includes trimming 2,400 jobs over the next three years.
The company said the total cost of the restructuring effort, which was implemented in late 2005 by chief executive officer Andrea Jung, will increase by $30 million to $530 million. The plan is now expected to ultimately save the firm $430 million annually, compared with the original goal of $300 million.
Avon will have sustained $460 million in restructuring costs through the fourth quarter of 2007 and the remainder by the end of next year.
That said, it expected to incur a charge of about $120 million in the fourth quarter ended Dec. 31. The charge includes restructuring of some international direct-selling operations, mostly in Germany, and streamlining supply chain operations in Western Europe and Latin America.
Avon plans to consolidate some distribution centers in continental Europe to its facility in Alcalá de Henares, Spain. As a result, the company will phase out its current center in Neufahrn, Germany, by early next year. In Latin America, Avon plans to open a new center in Brazil in 2010, phasing out its current distribution site in São Paulo the following year. Later this year, Avon will close its manufacturing facility in Guatemala, transferring production to its existing plant in Celaya, Mexico. It will continue to operate its distribution facility in Guatemala.
The above initiatives will impact some 4,000 employees globally, with net layoffs totaling approximately 2,400 through 2011. The move marks the latest in a series of layoffs — the first round several years ago targeted top management — since Avon implemented its turnaround plan in late 2005. The goal of the initial delayering was to flatten the organization to speed decision making and bring management closer to Avon’s representative base. Other cost-cutting efforts have included streamlining the U.S. distribution network and reducing the number of products in its portfolio. Much of the savings from these actions have been funneled into increased advertising spending and investment in its direct sales force.
Wall Street approves. Referring to the newly unveiled initiatives, Bear Stearns analyst Justin Hott wrote in a research note Tuesday, “Overall, we view this as a positive, since finding $130 million more of annual savings on $30 million of more charges than initially announced is a more than fair trade-off. The announcement also creates an element of finality to the restructure, easing concerns that Avon would be in perpetual cost-cutting mode instead of managing its business for growth.”
This story first appeared in the January 9, 2008 issue of WWD. Subscribe Today.
The restructuring phase related to Avon’s turnaround program remains on track, said Credit Suisse analyst Filippe Goossens, but, he clarified: “The turnaround still has a ways to go before delivering its full potential. There is still quite a bit to do in terms of generating continued earnings and revenue growth.” Goossens added that an ongoing flow of new product innovation and further improvements in the economic structure for representatives will remain critical components of the turnaround program.
“Avon continues to move in the right direction,” he said, noting that about 60 percent of the firm’s revenue stems from emerging markets, which may help offset exposure to weakness in the U.S., which accounts for 27 percent of revenue. “The place where you want to be is emerging markets.”
Also in the fourth quarter, Avon expects to take a charge of $110 million, primarily in inventory write-offs, as it weeds out underperforming products as part of its previously announced Product Line Simplification program.
— Molly Prior
Sally Susman Joining Pfizer
NEW YORK — Sally Susman, who has headed global communications at the Estée Lauder Cos. for the last seven years, was named senior vice president of worldwide communications and chief communications officer at Pfizer Inc. on Tuesday.
Susman will report to Jeffrey B. Kindler, chairman and chief executive officer of the global pharmaceutical giant and, as a member of the executive leadership team, she will have “overall responsibility for Pfizer’s global communications,” according to the company. Her last day at Lauder is Feb. 1.
The announcement confirms a report on Monday.
In referring to Susman’s previous experience at American Express and an eight-year stint in the federal government, Kindler said in a statement that the need to communicate the company’s position and accomplishments “has never been more important. We must ensure that our worldwide communications are as strategic and effective as possible in reaching all of our stakeholders, and Sally’s broad range of experience in both the public and private sectors, as well as her knowledge of global business and markets, makes her an ideal leader.”
Reached for comment, Susman spoke of “how much respect and admiration I have for the Lauder family.” She also referred to her “wonderful and transformational seven years at Estée Lauder.” But Susman, whose early career demonstrated an interest in public policy issues, pointed out that Pfizer is located “at the heart of the most important issue of our time, health care. This is front and center of the national debate.”