By  on August 1, 2006

NEW YORK — Six months into its three-year turnaround program, Avon Products Inc. continues to feel the pinch of its cost-cutting efforts and few of its rewards.

The direct seller reported Monday that its second-quarter net earnings fell 54 percent to $150.9 million, or 33 cents a share, pulled down by $49.2 million in restructuring costs. Net revenues increased 5 percent to $2.08 billion.

The results compare with net earnings of $328.6 million, or 69 cents, on net revenue of $1.98 billion in the year-ago period.

For the six months, net income was $207.1 million, or 46 cents a share, decreasing 59 percent from $500.6 million, or $1.05 per share, while revenues rose 6 percent to $4.08 billion from $3.87 billion from a year ago.

The results sent Avon's shares down nearly 12 percent to $28.99 at the close of trading on the New York Stock Exchange Monday, as the market reacted to concerns that Avon experienced an organic sales slowdown despite spending more than $50 million in advertising during the quarter, said analysts.

"We are only two quarters into a multiyear turnaround plan, but I do feel good about how much has been accomplished to date," said Avon chairman and chief executive officer Andrea Jung. "I feel very good about the leadership teams we have put in place. And I am very confident that we have the right people and the right jobs aligned against the right priorities."

Jung noted Avon has reduced management of the $8 billion beauty firm to eight layers from 15, eliminating approximately 25 percent of the executives within those ranks, and trimming 4,300 people, or 10 percent, of its workforce. The company expects the cuts alone to yield $200 million in cost savings, putting the beauty firm closer to its target of $300 million in cost savings.

"Although some of the savings from restructuring are starting to flow this year, in 2006 we are investing well ahead of these benefits to restore this business to health as quickly as possible," said Jung, during a conference call Monday.

Operating profit in the quarter fell 35 percent to $225 million, negatively affected by the $49 million in restructuring costs, which in addition to downsizing included the closure of some operations, including the Avon Salon and Spa, formerly located at 725 Fifth Avenue.

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