Top Companies Report

5. Avon Products

June 28, 2012

5. Avon Products

New York, NY
Sales: $8.2 billion for cosmetics, toiletries and fragrances.
Corporate sales: $11.2 billion. Net income: $513 million.

Key Personnel: Sheri S. McCoy, chief executive officer; Charles M. Herington, executive vice president, developing market group; Kimberly A. Ross, executive vice president and chief financial officer; Fernando J. Acosta, senior vice president and president, Latin America; Bob Briddon, senior vice president and president, Asia Pacific; Nancy Glaser, senior vice president, global communications; Donagh Herlihy, senior vice president, chief information officer and e-commerce; John Higson, senior vice president and president, Europe, Middle East and Africa; Jorge Martinez Quiroga, senior vice president and president, North America; John F. Owen, senior vice president, global supply chain; Kim Rucker, senior vice president, general counsel, corporate secretary and chief compliance officer; Mike Schwartz, senior vice president, global insights and marketing intelligence.

Major Products: Skin Care—Anew, Anew Clinical, Anew Genics, Clearskin Professional, Avon Solutions; Color Cosmetics—Avon Color, Jillian Dempsey Professional, Smooth Minerals, Anew Beauty; Personal Care—Skin-So-Soft, Avon Naturals, Foot Works; Hair Care—Advance Techniques; Fragrances—Outspoken and Outspoken Intense by Fergie; Mark. beauty products; Liz Earle naturally active skin care; Tiny Tillia baby products.

New Products: SuperShock Max Mascara, Moisture Seduction Lipstick, Outspoken Intense by Fergie Fragrance, Step Into Fragrance, Anew Genics Treatment Cream, Anew Solar Advance Sunscreen Face Lotion SPF 45, Solutions Youth Minerals Restorative Night Cream, Skin So Soft Perfecting Oil, Advance Techniques Damage Repair 3D Rescue Leave-in Treatment, Super Enchant Mascara, and ExtraLasting Makeup, Advance Techniques Frizz Control Lotus Shield.

Comments: Avon’s been in the news of late…much to company executives’ chagrin. Last year there was the bribery scandal in emerging markets. Next came the semi-forced resignation of CEO Andrea Jung. Most recently, there was Coty’s unsolicited bid for the company that went nowhere. To make matters worse, through all that Avon has been reporting less than stellar results.

The good news, of course, is that after a well-published search, Avon selected Sheri S. McCoy as its chief executive officer (Jung remains on the board as executive chairman). McCoy joined Avon after a 30-year career at Johnson & Johnson, most recently serving as vice chairman of the executive committee, responsible for the pharmaceutical and consumer business segments that represented more than 60% of the company’s revenues. McCoy received a B.S. degree in textile chemistry from the University of Massachusetts, Dartmouth. She also earned a master’s degree in chemical engineering from Princeton University and an MBA from Rutgers University. She holds four US patents. In 2011, McCoy ranked No. 10 on Fortune magazine’s “50 Most Powerful Women in Business” list, which she has been on since 2008.

Avon’s Glimmer Sticks eyeliners added on new hues this season.

McCoy may be powerful but she’ll need superhuman strength to give Avon a lift. Since 2007, the company’s stock has underperformed its peers, and Avon’s performance in North America has been underwhelming. First and foremost, however, McCoy will have to provide a lift to all those Avon Ladies. According to sources, the reps want improved commissions, a break on what they pay for brochures, more exciting products and less pressure to recruit more reps.

Last year, Avon’s sales rose 4%, primarily due to a favorable foreign exchange rate. The number of active representatives fell 1% to 6.4 million. Beauty product sales, which accounted for 73% of corporate revenue last year, rose 5%, although unit sales declined 1%. The company blamed slower-than-expected growth due to weaker macro-economic conditions. Still, all beauty segments reported an increase in dollar sales. Fragrance increased 7%, color cosmetics increased 5%, personal care rose 4% and skin care increased 3%.

By region, sales in North America fell 6% to $2.1 billion. Unit sales declined 10% and the number of active representatives declined 8% to about 420,000. Avon blamed the drop in sales on a declining number of active representatives, as well as weakness in the beauty market. That’s hard to believe, though, since nearly every research firm reported that beauty made a big comeback in the US in 2011.

In contrast, Latin America sales rose 11% to $5.1 billion, while unit sales increased 2% and the number of representatives rose 3%. Sales in Mexico improved 17% and sales in Brazil rose 6%.
Sales in Central and Eastern Europe were flat at nearly $1.6 billion. Units and active representatives declined 6% and 2%, respectively. Weakness in Russia was offset by a favorable exchange rate.

Western Europe, Middle East and Africa reported a 5% gain in sales to $1.5 billion. Unit sales increased 1%, while the number of active representatives rose 4%—which is why Avon’s sales rose in the region, according to the company. Furthermore, big gains in South Africa were partly offset by declines in the UK.

Sales in Asia Pacific fell 4% to $942 million. Last year, the results of Asia Pacific and China were managed as a single operating segment. Unfortunately, revenue in China fell 20% last year, but the company is focused on improving representative productivity.

For the first quarter of 2012, corporate sales fell 2% to $2.6 billion. Beauty sales declined 1%: color was flat, fragrance and skin care declined 1%, and personal care was down 2%.

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