November 1, 2012 / 11:49 AM / 8 years ago

Avon slashes dividend as profit plunges

(Reuters) - Avon Products Inc AVP.N slashed its dividend by nearly 74 percent on Thursday, while also announcing measures to cut costs by at least $400 million within three years in moves designed to shore up its finances while it new chief executive officer works on a turnaround.

Avon products are seen at a sale in New York April 18, 2009. REUTERS/Eric Thayer

The company also reported a steep plunge in third-quarter earnings, hurt by higher product costs and unfavorable exchange rates.

Shares of Avon fell 1.9 percent to $15.19 in premarket trading.

Avon CEO Sheri McCoy, who took the helm in April, called the results “disappointing” and said the company’s focus was on “stabilizing” the business.

The company, known for brands like Skin-So-Soft and Avon Color, lowered its quarterly dividend to 6 cents per share from 23 cents to give itself more flexibility.

Avon also said it would slash costs, mostly selling, general and administrative expenses, to save money in the next three years.

McCoy had said previously that Avon did not want to tap its revolving credit facility to fund the dividend, so the move was largely expected, Morningstar analyst Erin Lash said.

“We didn’t expect her to turn the company around overnight, and that’s exactly what we’re seeing,” Lash said.

Excluding items such as an impairment charge for its disappointing China results, Avon reported a profit of 17 cents a share, below the analysts’ average estimate of 22 cents, according to Thomson Reuters I/B/E/S.

There were some bright spots. Companywide, Avon sold 1 percent more items, and the number of sales representatives fell 1 percent, a more modest drop than in recent quarters.

Excluding the impact of currency fluctuations, sales were higher in Brazil, Avon’s top market, and the company signed more sales “reps.”

But elsewhere, the company’s problems continued. In North America, sales fell 8 percent, and in Russia, the company faced another reduction in the size of its sales force.

In China, a fast-growing cosmetics market, sales fell 31 percent.

Avon reported a net profit of $31.6 million, or 7 cents per share, compared with $164.2 million, or 38 cents per share, a year earlier.

Revenue fell to $2.55 billion from $2.76 billion.

Since McCoy became CEO, the company has started negotiations with the U.S. government to settle a bribery probe.

Avon said in a separate filing that discussions were “ongoing” with U.S. authorities probing whether the company had broken anti-bribery laws overseas.

McCoy has also brought in a number of her own executives. The company said last month that her predecessor, Andrea Jung, would step down as chairman at the end of the year.

Reporting by Phil Wahba in New York; Editing by Lisa Von Ahn

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