Avon Details Previously Announced Restructuring Program
Program Expected to Cost in the Range of $500 Million; Annual Savings Estimated at Over $300 Million
Feb 24, 2006
Avon Products, Inc. (NYSE: AVP) today said that the cost to implement its multi-year, four-part turnaround plan would be at the high end of its previously announced $300 million to $500 million range. After a detailed financial review, the company said that it anticipates restructuring costs for all initiatives to total in the range of $500 million, with implementation continuing over the next three years. Avon also said it expects to realize annual savings in excess of $300 million when the restructuring is completed.
The company said that its largest savings will come from actions to improve organizational effectiveness by removing layers of management and broadening spans of control throughout its global organization. Avon's early actions have been focused in this area. This delayering program is projected to be completed during 2006 and to ultimately yield approximately $150 million in annual savings. The company intends to undertake other projects focused on realigning its global manufacturing base; improving procurement and distribution processes; and regionalizing, centralizing and outsourcing certain activities and transactional processes.
Avon said it expects to re-invest a large portion of its restructuring savings back into its business to drive sustainable revenue growth. Savings are to be spent on increased advertising, enhanced support and programs for its Representatives, additional product research and development and market research. Advertising is forecasted to increase 50% in 2006 alone, and to more than double from 2005's level by 2008.
Beyond the transition year of 2006, Avon said it will seek to contain overhead expenses in line with or below the prior-year's level to further improve profitability and enable ongoing reinvestment in the business.
The company reiterated that it projects revenue to be flat to up slightly in 2006, and forecasts revenue growth in local currencies that will average mid-single digits after 2006.
Andrea Jung, chairman and CEO, commented, "We are encouraged by the progress we are making as we implement the early phases of our turnaround plan. With the costs and benefits now fully sized, we are focused on the proper sequencing of initiatives to ensure successful execution. The organization is fully aligned behind our plan and committed to this important task, and we are confident that we are taking the necessary steps to restore Avon to sustainable growth."
Ms. Jung is expected to discuss these plans at the Consumer Analyst Group of New York conference today in Scottsdale, Ariz. The presentation will be webcast live beginning at 10:15 A.M. Eastern time, and can be accessed at http://www.avoninvestor.com/ for a period of two weeks afterwards.
Avon, the company for women, is a leading global beauty company, with over $8 billion in annual revenue. As the world's largest direct seller, Avon markets to women in well over 100 countries through over five million independent Avon Sales Representatives. Avon's product line includes beauty products, fashion jewelry and apparel, and features such well-recognized brand names as Avon Color, Anew, Skin-So-Soft, Avon Solutions, Advance Techniques, Avon Naturals, Mark, and Avon Wellness. Learn more about Avon and its products at http://www.avoncompany.com/.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this release that are not historical facts or information are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," "planned," "potential" and similar expressions may identify forward-looking statements. Such forward- looking statements are based on management's reasonable current assumptions and expectations. Such forward-looking statements involve risks, uncertainties and other factors, which may cause the actual results, levels of activity, performance or achievement of Avon to be materially different from any future results expressed or implied by such forward-looking statements, and there can be no assurance that actual results will not differ materially from management's expectations. Such factors include, among others, the following: general economic and business conditions in our markets, including social, economic, political and competitive uncertainties in Latin America, Asia Pacific, Central and Eastern Europe and the Middle East; our ability to implement our business, cash management and tax strategies and our multi-year restructuring initiatives and our ability to achieve anticipated benefits from such initiatives; the possibility of business disruption in connection with our multi-year restructuring initiatives; our ability to achieve anticipated cost savings and our profitability and growth targets, particularly in our largest markets; our ability to implement appropriate product mix and pricing strategies; the impact of changes in consumer spending patterns and preferences, particularly given the global nature of our business; our ability to replace lost sales attributable to the repositioning of the U.S. Beyond Beauty business; the impact of substantial currency fluctuations on the results of our foreign operations and the cost of sourcing foreign products and the success of our foreign currency hedging and risk management strategies; our ability to implement our Sales Leadership program globally, to increase Representative productivity and recruit Representatives; our ability to implement our enterprise resource planning project; the impact of possible pension funding obligations and increased pension expense on our cash flow and results of operations; the impact of stock option expense pursuant to Statement of Financial Accounting Standards No. 123®; our ability to successfully transition our business in China in connection with the anticipated resumption of direct selling in that market; the effect of legal, regulatory and tax proceedings, as well as restrictions imposed on us, our operations or our Representatives by foreign governments; the risk of an adverse outcome in our material pending litigations; our ability to successfully identify new business opportunities; our access to financing; and our ability to attract and retain key personnel and executives. Additional information identifying such factors is contained in our Annual Report on Form 10-K for the year ended December 31, 2004, filed with the U.S. Securities and Exchange Commission. We undertake no obligation to update any such forward- looking statements.
SOURCE: Avon Products, Inc.
CONTACT: Media - Victor Beaudet, +1-212-282-5344, or Sharon Samuel,
+1-212-282-5322, or Investors - Renee Johansen or Rob Foresti,
+1-212-282-5320, all of Avon Products, Inc.
Company News On-Call: http://www.prnewswire.com/comp/079575.html
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