Strategy

Avon Weighing Sale of North America Unit?

The struggling cosmetics company postponed an investor meeting, sparking rumors of a major strategic move.
Matthew HellerApril 14, 2015
Avon Weighing Sale of North America Unit?

Avon Products may be considering a sale of its ailing North American business as part of a strategic review of its operations.

Citing people familiar with the matter, The Wall Street Journal reported Tuesday that no deal involving the North American unit is imminent, but the strategic review “indicates that Avon thinks improving its performance could take a major overhaul as opposed to more run of the mill fix-it efforts.”

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avonThe company announced Monday it had postponed a long-anticipated investor meeting where it was to outline plans to turn around the struggling cosmetics company. Avon said newly-appointed CFO James Scully needed “adequate time to prepare for a more robust discussion at the meeting.”

Carol Levenson, bond analyst at GimmeCredit, wrote that such a move “nearly always prods the rumor mill into action.”

On a conference call with analysts in February, Avon CEO Sherilyn McCoy said Avon’s North America unit was on track to be profitable this year and described the United States as “important” for the company. But the unit’s sales dropped 17% last year to $1.2 billion and, in the last three months of 2014, it was the company’s only region to post a decline in sales when excluding currency impacts.

Analysts, the WSJ noted, “have long wondered why Avon doesn’t shed the business to focus on more robust markets in Latin America and elsewhere.” The company has annual sales of $8.9 billion, with 86% of sales coming from outside North America.

Avon posted an earnings per share loss of $0.88 in 2014, following a $0.13 per share loss in 2013 and a $0.10 per share loss in 2012. The company has been struggling to stem declining financial results and shrinking ranks of its door-to-door sales reps.

“Management continues to claim they know what’s wrong and how to fix it, yet results continue to languish,” wrote Levenson.

Trading in Avon shares was briefly halted Tuesday following the report in the WSJ. The stock closed up more than 14% at $9.15.

Scully, who was formerly chief operating officer at J.Crew, took over as Avon CFO in March. “Unless Avon somehow persuades a buyer to pony up some serious money for some or all of the company, the new CFO could face more than robust discussion” at the investor meeting, 24/7 Wall St. predicted.

Avon turned down a $24.75 a share offer from Coty Inc. in 2012.

Image: Thinkstock

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