Aug 1, 2012
Reading time
2 minutes
Download the article
Click here to print
Text size
aA+ aA-

Avon trying to settle bribery probe as profit plunges

Aug 1, 2012

Avon Products Inc said it is in talks to settle a U.S. bribery probe even as it also posted a 70 percent plunge in second-quarter profit and its stock fell 1.5 percent.

Photo: Avon

In a regulatory filing on Wednesday, Avon said it was in discussions with the U.S. Securities and Exchange Commission and the U.S. Department of Justice to try to reach a settlement Into the investigation into whether it broke anti-bribery laws overseas.

"While these discussions will take time, it is progress," recently appointed Chief Executive Sheri McCoy said during a conference call with analysts.

Avon's shares were down about 1.5 percent, or 22 cents, at $15.24 in morning New York Stock Exchange trading.

Avon has spent $250 million dollars on its own internal probe, which opened in 2008 and initially focused on whether its China business had violated the foreign Corrupt Practices Act, which bars U.S. companies and others from paying bribes to officials of foreign governments.

The company's investigation spread into other countries and has led to dismissals and departures in the past year-and-a-half.

The settlement talks come as McCoy also tries to stem falling sales, especially in key markets Russia and Brazil.

Avon reported a net profit of $61.6 million, or 14 cents per share, down from $206.2 million, or 47 cents per share, a year earlier.

Excluding one-time items, earnings from continuing operations were 20 cents per share, a penny below what Wall Street was expecting, according to Thomson Reuters I/B/E/S.

The beauty company, known for brands like Skin-So-Soft and Avon Color, sold 4 percent fewer items during the quarter. Its sales force of "Avon Lady" representatives shrank 3 percent globally.

Revenue dropped 9 percent to $2.59 billion, below analysts' estimates of $2.66 billion.

McCoy said in a statement the results "are not good" and that turning Avon around "will take time."

She said the company is trying to stabilize revenue, rein in costs and make being a representative more attractive.

Avon struggled in all of its main categories, with skincare and personal-care sales declining the most.

In Brazil, Avon's top market, the company faced heavy competition and the loss of representatives, and in Russia, competition and a tough economy dented sales.

One analyst said McCoy might not have the luxury of time to fix the business in those two big markets, which were supposed to buoy Avon.

"Increasing competition means the clock is ticking to improve performance, particularly in Brazil and Russia," Stifel Nicolaus analyst Mark Astrachan said in a research note.

In its home market of North America, the years-long slide in sales continued, falling 6 percent, and about 12 percent of representatives have left the company.

During the quarter, Avon fended off a $10.7 billion unsolicited takeover bid from smaller rival Coty Inc, saying shareholders would benefit more in the long term from a turnaround under McCoy's leadership.

Avon's shares have fallen 43.2 percent since hitting a 52-week high a year ago.

© Thomson Reuters 2023 All rights reserved.