Avon Products Inc. plans to underscore its pragmatic, turnaround mentality with a new round of restructuring later this year that is expected to yield $200 million in annualized savings when fully implemented.
Avon’s latest plan follows on the heels of the direct-seller’s multipronged, three-year restructuring effort implemented in 2005, which has flattened the organization to speed decision making, streamlined the U.S. distribution network and reduced 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.
On Thursday, Avon said it now expects savings from the original restructuring to exceed earlier expectations and approach approximately $900 million ultimately.
Charles Cramb, Avon’s vice chairman and chief finance and strategy officer, stated the original restructuring has succeeded in dramatically transforming the firm’s cost structure. In the short term, Avon expects that effort to deliver total savings of approximately $430 million by 2011 to 2012. In another prong of the same effort, Avon expects to realize annual benefits from its product line simplification program — which prunes underperforming items — and its strategic sourcing initiatives in excess of $200 million and $250 million, respectively, in 2010.
The new restructuring program will focus on the company’s global supply chain operations, realigning certain local business support functions to a more regional basis to drive increased efficiencies and streamlining transaction-related services, including selective outsourcing.
Details are expected before implementation begins during the second half of 2009. The company estimates the plan, expected to be fully in place by 2013, will cost between $300 million and $400 million.
“This reflects both our constant turnaround mentality and our determination to aggressively manage our cost structure as we address the current macroeconomic challenges,” said Cramb.
Earlier this month, Avon announced its fourth-quarter profits grew 80.3 percent, to $232 million, in the fourth quarter ended Dec. 31, while revenues, hurt by unfavorable currency fluctuation, declined 8.7 percent to $2.81 billion.
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