Avon Lays Out Final Cost-Cutting Stage... Sally Susman Joining Pfizer

Avon Products Inc. has entered the final stretch of its more than half-billion-dollar restructuring plan.

Andrea Jung

Andrea Jung

Photo By WWD Staff

Avon Products Inc. has entered the final stretch of its more than half-billion-dollar restructuring plan.

The direct seller on Tuesday detailed the last round of cost-cutting initiatives under its ongoing turnaround plan, which includes trimming 2,400 jobs over the next three years.

The company said the total cost of the restructuring effort, which was implemented in late 2005 by chief executive officer Andrea Jung, will increase by $30 million to $530 million. The plan is now expected to ultimately save the firm $430 million annually, compared with the original goal of $300 million.

Avon will have sustained $460 million in restructuring costs through the fourth quarter of 2007 and the remainder by the end of next year.

That said, it expected to incur a charge of about $120 million in the fourth quarter ended Dec. 31. The charge includes restructuring of some international direct-selling operations, mostly in Germany, and streamlining supply chain operations in Western Europe and Latin America.

Avon plans to consolidate some distribution centers in continental Europe to its facility in Alcalá de Henares, Spain. As a result, the company will phase out its current center in Neufahrn, Germany, by early next year. In Latin America, Avon plans to open a new center in Brazil in 2010, phasing out its current distribution site in São Paulo the following year. Later this year, Avon will close its manufacturing facility in Guatemala, transferring production to its existing plant in Celaya, Mexico. It will continue to operate its distribution facility in Guatemala.

The above initiatives will impact some 4,000 employees globally, with net layoffs totaling approximately 2,400 through 2011. The move marks the latest in a series of layoffs — the first round several years ago targeted top management — since Avon implemented its turnaround plan in late 2005. The goal of the initial delayering was to flatten the organization to speed decision making and bring management closer to Avon's representative base. Other cost-cutting efforts have included streamlining the U.S. distribution network and reducing 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.

Wall Street approves. Referring to the newly unveiled initiatives, Bear Stearns analyst Justin Hott wrote in a research note Tuesday, "Overall, we view this as a positive, since finding $130 million more of annual savings on $30 million of more charges than initially announced is a more than fair trade-off. The announcement also creates an element of finality to the restructure, easing concerns that Avon would be in perpetual cost-cutting mode instead of managing its business for growth."
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