Perfume Industry in Brazil News

Avon misses, another blemish for CEO to clean up

(Reuters) - Avon Products Inc (AVP.N) executives are taking a hard look in the mirror after posting disappointing profits for the second consecutive quarter, the latest in a series of blemishes for the cosmetics firm.

Poor performance in Brazil and Russia were the latest missteps for the company, which has also been pouring tens of millions of dollars into an international bribery investigation and is trying to ignite growth in a sluggish U.S. market. Those problems were largely to blame for Avon's missing Wall Street's profit and revenue expectations, pushing shares of the world's largest direct seller of cosmetics down 4.4 percent. Chairman and Chief Executive Andrea Jung put the blame squarely on the company, leading analysts to question how 125-year-old Avon will fix itself. "Avon has unfortunately become a broken record of promises and disappointments, followed by more promises and more disappointments, over the past decade," said Sanford Bernstein analyst Ali Dibadj. Jung, Avon's CEO since 1999 and its chairman since 2001, defended the work being done to address the company's issues, including linking executive compensation to an operating margin target that Avon shares with the public.

"Maybe something more drastic needs to happen," Citigroup analyst Wendy Nicholson said during Avon's conference call. "Andrea, it is great that your problems aren't structural, but if they are all execution, well then shouldn't there be a bunch of people who lose their jobs over such awful execution?" Jung said the company's structure might need to change. She did not say whether anyone would be fired. Avon overhauled its operations and cut thousands of jobs under a restructuring laid out in November 2005 and updated in February 2009. Its business units have reported directly to Jung since 2006, when president and chief operating officer Susan Kropf retired and her position was eliminated. Shares of Avon were down $1.30 at $28.05 after falling to $27.34, their lowest level since July.

BRAZIL AND RUSSIA WOES

Tuesday's comments marked the latest admission by Avon that it needs to pay closer attention to its business in emerging markets, where it faces increasing pressure from competitors such as Procter & Gamble (PG.N), Unilever (ULVR.L) (UNc.AS) and Beiersdorf (BEIG.DE) as they sell more cosmetics in stores. In China, still a tiny market for Avon, it continues to deal with the fallout from a bribery investigation that began there and the slow process of moving to a direct sales model. Latin America is by far Avon's largest market, accounting for more than 42 percent of sales in 2010, followed by North America with nearly 21 percent and Central and Eastern Europe with more than 14 percent. In the fourth quarter, revenue rose 11 percent in Latin America on a constant currency basis but just 2 percent in Brazil.

 

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