The Avon Lady is swinging the axe — once again. But some analysts seemed unimpressed by the latest round of cost-cutting talk.

This story first appeared in the February 15, 2012 issue of WWD. Subscribe Today.

This ambivalent mood from Wall Street came on the heels of a disappointing fourth quarter for Avon Products Inc.

The company — pressured by an ongoing investigation by the Securities and Exchange Commission — plans to trim head count as early as the first quarter of this year, said Avon’s newly installed executive vice president and chief financial officer Kimberly Ross, who led the earnings call Tuesday with chairman and outgoing chief executive officer Andrea Jung. Jung will take on the role of executive chairman once a new ceo is in place.

Ross, who joined Avon 10 weeks ago, said of the upcoming layoffs, “While these reductions are not expected to be of the size and magnitude of those seen in the past, I see some immediate and medium-term opportunities to reduce head count and corporate cost.” She told analysts, “We are still in a culture where every penny counts.”

Analysts were indifferent about Avon’s call to cut costs, dismissing it as a familiar anthem from the company.

“This is a company that has been cutting costs for five years. How much can you squeeze a rock?” one analyst told WWD.

During the company’s earnings call, Sanford C. Bernstein & Co. analyst Ali Dibadj told Jung and Ross, “I can’t help but feel that Avon is a rudderless ship.…You’ve been in a restructuring for all but three years of the last 13 years.”

Another analyst, Mark Astrachan of Stifel Nicolaus & Co., said, “Cutting head count seems oversimplified. Why hasn’t this been done before?”

The call was more subdued in tone — and certainly less contentious — than the previous call in October, when analysts’ criticisms of Avon hit a crescendo following a series of major missteps by the beauty brand that has resulted in operational weakness in major developed markets, stumbles in key developing regions and questions over corporate governance issues, including investigations by the SEC regarding the company’s dealings with Wall Street analysts and its compliance with the Foreign Corrupt Practices Act.

Connie Maneaty, analyst at BMO Capital Markets, credited Ross with “addressing the issues she can fix” during the call. The company needs to have a cost structure in place that keeps it nimble in a challenging environment,” said Maneaty. “Avon can start that without a new ceo in place.”

Ross — who has already traveled to Brazil, Avon’s largest market — told analysts, “What I’ve seen so far gives me confidence that these are fixable issues. With the right analytics, execution and top-to-bottom organization engagement, I am certain we can win over time.”

Avon saw no shortage of challenges in the quarter ended Dec. 31. Sales declined in all regions except Latin America, where volume gained 6 percent in constant dollars but declined 1 percent in Brazil.

The direct seller posted a loss of $400,000, or nil on a per share basis. The deficit compared with earnings of $229.5 million, or 53 cents, a year earlier. Revenues for the quarter ended Dec. 31 fell 4.5 percent to $3.04 billion from $3.14 billion.

Adjusted earnings came in at 39 cents a share, well below the 51 cents analysts expected. Investors were forgiving — perhaps as they focused on the firm’s cost-cutting efforts and plans to maintain its dividend — and pushed Avon’s stock up 2.1 percent to $17.90 in midmorning trading.

However, the cost savings may be smaller than some would have hoped, said Consumer Edge Research analyst Javier Escalante, adding that Avon’s plan to eliminate about 500 district managers renders negligible savings. He wrote in a research note Tuesday that “$30 million in savings, our estimate, seems insignificant versus the $1 billion-plus Avon had extracted in the past five years, of which $775 million was reinvested, failing to fix the business — that is, putting Avon in a trajectory of sustainable growth.” He added that Avon’s issues are mostly structural and include maturing markets in Russia and Brazil, as well as price points that are too low to reap a significant earnings potential for representatives.

Jung, for her part, called 2012 a year of transition, stating, “Our priorities are to improve top-line performance, cost management and cash generation. Additionally, the company plans to maintain its annual 92 cent dividend in 2012. As previously announced, the company is conducting an operational and financial assessment of the business. We will update investors at the appropriate time after a new ceo is on board.”

She has used the same language before, calling 2006 — the start of Avon’s aggressive, multiyear restructuring effort — “a transition year.”

During Tuesday’s call, Jung was asked by several analysts if the incoming ceo — who has yet to be selected — will have autonomy to set the strategic direction of Avon with Jung sitting in the executive chairman seat. She responded, “The new ceo will have absolute autonomy to set the strategic priorities and to break the glass that needs to be broken.” Jung added Avon will hold off on making any long-term strategic decisions until after the new ceo is in place.

No questions were asked about The Wall Street Journal’s report on Monday that the Federal Bureau of Investigation and U.S. prosecutors have presented evidence in the FCPA investigation of Avon to a grand jury. Jung said of the investigation, “In terms of the internal investigation and [Financial Disclosure] matter, our priority continues to be to try and move these matters forward.”

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