Shares of the troubled beauty company, Avon Products Inc. (AVP - Free Report) , dropped 4.43% closing at $71.03 after the news broke of its workforce downsizing and the halt in implementation of its service model transformation (SMT).
Avon declared that it is moving ahead with the previously announced $400 million cost saving initiative by laying off 650 jobs globally. This includes job cuts in North America in the fourth quarter and eliminating positions related to its SMT program. This is the third time the company has laid off people since the announcement of its cost saving initiative in Nov 2012.
In the two earlier moves, the company had cut about 1,500 jobs in Dec 2012 and 400 jobs in Apr 2013. Simultaneously, the company ceased operations in the underperforming South Korea, Vietnam and Ireland markets.
Overall, the company expects to incur net charges of nearly $35 – $45 million (before tax) from these initiatives, of which $35 million is likely to be recorded in the fourth quarter and the rest throughout 2014. Annualized cost synergies arising from the initiative are expected to range between $40 and $45 million before tax, contributing significantly to the company’s targeted cost-savings of $400 million by the end of 2016.
Returning to the latest action, the door-to-door cosmetics seller stopped the global rollout of the software supplied by SAP AG (SAP - Free Report) under its SMT project after it failed to impress the company’s sales representatives in Canada. The SMT project, which went on air in 2009, was designed to enhance the company’s order management system and facilitate communication with its sales persons.
However, the software worth a $125 million fled away representatives in Canada during its four-year test phase, significantly affecting Avon’s business in Canada. In this context, the company will write down the software in fourth-quarter 2013 incurring a non-cash impairment charge of $100–$125 million. These charges will form a part of the company’s global expenses.
Avon’s strategic measures formulated in Nov 2012 remain focused on accelerating top-line growth, trimming costs and improving working capital to revive the company from the ongoing challenges. Management is in the process of easing business issues and directing the company toward higher growth, thereby restoring its competitive position among peers like Revlon Inc. (REV - Free Report) and The Est (EL - Free Report) .
The challenges faced by this Zacks Rank #5 (Strong Sell) company were reflected in its third-quarter 2013 financial results. The company’s earnings of 14 cents in the quarter declined of 22.2% year over year and missed the Zacks Consensus Estimate of 19 cents on account of the prevailing macroeconomic woes and weak performance at some of the company’s segments, primarily in North America. Total revenue dropped 7% year over year to $2,322.9 million, while missing the Zacks Consensus Estimate of $2,422.0 million.