Original Restructuring Program Still on Track to Savings of $300 Million
Total Savings and Benefits Now Projected to Exceed $700 Million
Incremental Investments in Both the Brand and Channel Projected to Drive
Sustainable Mid-Single-Digit Revenue Growth
NEW YORK, Feb. 15 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE:
AVP) today announced that it expects annualized benefits from Product Line
Simplification (PLS) and its Strategic Sourcing Initiative (SSI) to exceed
$400 million when fully realized. Avon management will review these
initiatives and its business strategies at a company-sponsored investor
meeting here today. The meeting will be webcast live beginning at 9:00 A.M.
Eastern Time, Thursday, February 15, and later will be archived on Avon's
investor website, http://www.avoninvestor.com.
Coupled with savings from its previously announced restructuring
program, Avon said total savings and benefits from the combined initiatives
are expected to exceed $700 million.
"We are pleased that these incremental benefits will provide us with
additional fuel with which to continue to drive our turnaround," said
Andrea Jung, Avon's chairman and chief executive officer. "We are seeing
strong paybacks from our investments to drive growth, and in 2007 we will
again invest in the business at accelerated levels, to build a strong
foundation for sustainable growth."
The company said it expects to realize initial benefits from Strategic
Sourcing beginning in the second half of 2007, with total annualized
benefits from this single initiative exceeding $200 million by the end of
2009. The company expects no large costs associated with implementing SSI.
Avon said it anticipates similar benefits from PLS, with benefits
building progressively over the next three years. To date, the company has
incurred costs of $81 million, primarily incremental inventory
obsolescence, on this effort. Avon said additional costs associated with
PLS, to be determined and sized as the company identifies its optimal
product assortment over the next three years, may be in the range of $100
million.
In addition to PLS and SSI, Avon said that its original restructuring
program announced in November 2005 is on track to deliver in excess of $300
million of annualized savings upon full implementation. This original
program is still estimated to cost $500 million in total to implement, of
which the company has incurred $285 million to date.
The company said that it will use the savings and benefits from its
restructuring, PLS and SSI initiatives to fund increased investments in
both its brand and channel. Avon said that it expects to increase
advertising by 35% in 2007, to approximately $340 million. This projected
increase comes on top of an 83% increase in 2006. In addition, the company
plans to step up its level of investment behind various actions to improve
its Representative Value Proposition in 2007 and beyond. These investments
are designed to tip the balance between earnings and effort in favor of
Avon's more than five million independent Representatives around the globe.
Avon reiterated that revenue growth should average mid-single digits
over the long term. Reflecting continued investments in both brand and
channel, as well as the costs of restructuring and PLS, the company said
that operating margin recovery would take a year longer than initially
planned. While operating margin should expand in 2007 from 2006's level of
8.7%, it is expected to be close to 2005's level of 14.1% in 2008. As the
savings and benefits from restructuring, PLS and SSI begin to exceed the
incremental levels of investment in advertising and the Representative
Value Proposition, operating margin is then expected to further expand
beginning in 2009.
"We are making the right investments for this business at this
important juncture to set the stage for enhanced profitability in the
future," said Ms. Jung. "We are managing the business for the long-term and
investing to strengthen the foundation and restore sustainable growth."
Avon, the company for women, is a leading global beauty company, with
over $8 billion in annual revenue. As the world's largest direct seller,
Avon markets to women in well over 100 countries through over five million
independent Avon Sales Representatives. Avon's product line includes beauty
products, fashion jewelry and apparel, and features such well-recognized
brand names as Avon Color, Anew, Skin-So-Soft, Avon Solutions, Advance
Techniques, Avon Naturals, Mark, and Avon Wellness. Learn more about Avon
and its products at http://www.avoncompany.com.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this release that are not historical facts or information
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Words such as "estimate," "project," "plan,"
"believe," "expect," "anticipate," "intend," "planned," "potential" and
similar expressions, or the negative of those expressions, may identify
forward-looking statements. Such forward-looking statements are based on
management's reasonable current assumptions and expectations. Such
forward-looking statements involve risks, uncertainties and other factors,
which may cause the actual results, levels of activity, performance or
achievement of Avon to be materially different from any future results
expressed or implied by such forward-looking statements, and there can be
no assurance that actual results will not differ materially from
management's expectations. Such factors include, among others, the
following:
* our ability to implement the key initiatives of our global business
strategy, including our multi-year restructuring initiatives, product
mix and pricing strategies, enterprise resource planning, customer
service initiatives, product line simplification, strategic sourcing
initiative, zero overhead growth and cash management, tax, foreign
currency hedging and risk management strategies;
* our ability to realize the anticipated benefits from our multi-year
restructuring initiatives or other strategic initiatives on the time
schedules or in the amounts that we expect, and our plans to invest
these anticipated benefits ahead of future growth;
* the possibility of business disruption in connection with our
multi-year restructuring initiatives or other strategic initiatives;
* the costs associated with our product line simplification program;
* our ability to achieve growth objectives, particularly in our largest
markets and new and emerging markets;
* our ability to successfully identify new business opportunities and
acquisition candidates, and our ability to successfully integrate or
manage any acquired business;
* the effect of political, legal and regulatory risks, as well as foreign
exchange or other restrictions, imposed on us, our operations or our
Representatives by governmental entities;
* our ability to successfully transition our business in China in
connection with the resumption of direct selling in that market and our
ability to operate using the direct-selling model permitted in that
market;
* the impact of substantial currency fluctuations on the results of our
foreign operations;
* general economic and business conditions in our markets, including
social, economic and political uncertainties in Latin America, Asia
Pacific, Central and Eastern Europe and the Middle East;
* a general economic downturn, information technology systems outages,
disruption in our supply chain or manufacturing and distribution
operations, or other sudden disruption in business operations beyond
our control as a result of events such as acts of terrorism or war,
natural disasters, pandemic situations and large scale power outages;
* the quality, safety and efficacy of our products;
* the success of our research and development activities;
* our ability to attract and retain key personnel and executives;
* competitive uncertainties in our markets, including competition from
companies in the cosmetics, fragrances, skin care and toiletries
industry, some of which are larger than we are and have greater
resources;
* our ability to implement our Sales Leadership program globally, to
generate Representative activity, to increase Representative
productivity, to improve Internet-based tools for our Representatives,
and to compete with other direct-selling organizations to recruit,
retain and service Representatives;
* the impact of the seasonal nature of our business, changes in market
trends, purchasing habits of our consumers and changes in consumer
preferences, particularly given the global nature of our business and
the conduct of our business in primarily one channel;
* our ability to protect our intellectual property rights;
* the risk of an adverse outcome in our material pending and future
litigations;
* our access to financing; and
* the impact of possible pension funding obligations and increased
pension expense on our cash flow and results of operations.
Additional information identifying such factors is contained in Item 1A
of our Annual Report on Form 10-K for the year ended December 31, 2005,
filed with the U.S. Securities and Exchange Commission. We undertake no
obligation to update any such forward-looking statements.
SOURCE Avon Products, Inc.
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Related links:
http://www.avon.com
http://www.avoncompany.com http://www.avoninvestor.com
http://www.prnewswire.com/comp/079575.html /
CONTACT:
Media: Victor Beaudet, +1-212-282-5344, or
Sharon Samuel, +1-212-282-5322, or Jennifer Vargas,
+1-212-282-5404, or Investors: Renee Johansen or Rob Foresti,
+1-212-282-5320, all of Avon Products, Inc.
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