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Avon to cut 2,400 jobs in restructuring
2008-01-08
Avon Products Inc. on Tuesday said it will cut 2,400 jobs as part of its multiyear restructuring plan, which will cost more than originally expected and ultimately save the beauty-products maker $430 million annually. Avon unveiled its restructuring program in Nov. 2005. It involved steep job cuts, the elimination of management layers and the realignment of manufacturing centers and outsourcing work to countries with cheaper labor costs. The company, which sells beauty products to women directly, operates in 100 countries through more than 5 million independent sales representatives. Its products include Skin-So-Soft, Avon Color, Anew and other brands. The restructuring plan will cost $530 million, up from a previous estimate of $500 million, of which $460 million will have been taken through the fourth quarter of 2007. The remainder will be recognized by the end of 2009. In the fourth quarter, the company will take a charge of $120 million for restructuring some international direct selling operations, realigning supply-chain operations in Western Europe and Latin America, outsourcing call centers and other initiatives. About 4,000 jobs globally will be cut by the restructuring, but new jobs will be created, resulting in a net reduction of 2,400 jobs. Avon will cut an undisclosed number of jobs in Continental Europe, particularly in Germany, over the next two years. The company's new Brazilian plant, expected to open in 2010, will employ about 1,300. Avon will phase out its current distribution site in Sao Paulo, Brazil, in 2011, which employs 1,700 people. It will also close its manufacturing plant in Guatemala in late 2008 and transfer production to its existing plant in Celaya, Mexico. The company would not disclose the nature or location of other job cuts. Avon expects it will save $430 million annually by 2011 or 2012. Originally, the company had said it expected to save $300 million in 2009. "They basically just extended the program, it was originally to 2009 and they tacked on 2011 and 2012," said UBS analyst Nik Modi. The company also said it will take a $110 million inventory write-off charge as part of its product-line simplification initiative. When the inventory write-off is complete, "we'll be looking at much cleaner numbers as we go through 2008," Modi said. Citigroup analyst Wendy Nicholson said in a note to investors on Tuesday the plan remains on track and reiterated her "Buy" rating on the stock, which is her "top pick." "Today's news serves as another example, we believe, of Avon's terrific execution of their current restructuring program, and reinforces our conviction that Avon will be the best earnings growth story in our large cap group in 2008 and 2009," she said. Shares rose 35 cents to $38.90 during morning trading.
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