Wednesday, December 14, 2011

In the Cosmetics /Business World

Avon's Andrea Jung loses CEO title By staff and wire

The list of women CEOs in the U.S., never very long, is losing one of its most prominent names.

Avon Products Inc., the global beauty company, said it has begun a search to replace chief executive Andrea Jung, who will remain as chairman. Jung has attracted the ire of investors because of slumping sales and a federal probe about whether the company broke bribery laws overseas.

Jung will be named executive chairman beginning in the new year, Avon said Tuesday, adding that Jung will work with the board to find a replacement.

"The stock has been cut in half this year," Ali Dibadj, analyst at Sanford C. Bernstein, said. "The trust between investors and management has been severed. There have been a few times where expectations have been laid out there and have not been met."

Avon in October said that the Securities and Exchange Commission was investigating the company's contact during 2010 and 2011 with certain analysts and other representatives of the financial community. The company also reported third-quarter profit that fell below analyst expectations, with Brazil weighing on earnings as the result of implementation of a new computer system, while tough economic conditions also hurt sales in other markets.

Jung has been Avon's CEO since 1999 and is credited with helping to grow the company in the late 1990s and early 2000s, as it continued to expand, bringing the prospect of a career or even just some extra pocket money to women from South Africa to South Korea.

But in the past several years, Avon has turned in poor performances in key markets such as Brazil and Russia, poured tens of millions of dollars into its international bribery investigation and struggled to stem declines in a sluggish U.S. market.

Aside from saying in October that the SEC was conducting its own bribery probe, the company also said the commission was looking into whether the company violated disclosure laws in contacts with analysts and others.

Avon shares have fallen 44 percent this year, while the Standard & Poor's 500 Index is down only 2.5 percent.

Though the stock rallied on the announcement of a CEO change on Tuesday, analysts were skeptical about the impact of the move.

"What you can say is the company is going to look for a CEO who hopefully will be able to right-size the fundamentals. But it's too soon to say anything about the turnaround itself," BMO Capital Markets analyst Connie Maneaty said.

Jung is popular with the representatives who sell the company's products, and at one time were known as "Avon Ladies."

That popularity might be one reason Jung is staying on as chairman, Dibadj said.

"Andrea is extraordinarily good at working with the representatives, and letting them down in some sense, very hard, might not be the best business decision," he said.

Jung's successor will need to be somebody who can also inspire the representatives, but at the same time improve operations and set out a vision beyond the "boom and bust" cycle Avon has endured, he said.

Reuters contributed to this report.

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