Moody’s Investors Service cut Avon Products Inc.’s long-term credit rating to “A3” from “A2” because the company has been unable to “stabilize weak operating trends” in key markets such as Brazil and North America.
The outlook on the rating, which has the direct beauty merchant four notches above junk-bond status, is negative.
“Persistent weakness in major developed markets, execution-related problems in key developing markets, high spending levels on advertising and representative investments, and continued weak free cash flow means that a recovery in credit metrics will likely require more time and resources than originally planned,” said Moody’s senior vice president Janice Hofferber.
Moody’s also said that the corporate governance issues and the uncertain financial impact of Securities and Exchange Commission investigations into the company remain a concern for the rating.
Last month, Avon said the SEC has issued a subpoena, requesting information on its contact with Wall Street analysts. The government watchdog is also looking into Avon’s compliance with the Foreign Corrupt Practices Act.