Avon Products, Inc. highlighted the initial restructuring actions under the 2009 program it announced in February to continue driving the long-term transformation of its cost structure and to increase efficiency and organization effectiveness across its global operations.
Avon said that it expects total costs to implement the initiatives approved to date to be approximately $165 million, including a charge of approximately $77 million pretax in the second quarter of 2009. When combined with costs of approximately $13 million to implement initiatives from its 2005 restructuring program, the company said that it will incur a total charge of approximately $90 million in the quarter, or $0.19 per share, including $0.05 per share for a one-time restructuring tax charge.
"When fully implemented, the initiatives approved to date reflect almost half the costs to implement the 2009 restructuring program, and are expected to generate approximately 60% of the targeted annualized savings," said Charles Cramb, vice chairman, chief finance and strategy officer, Avon. "As a result, we are on track to achieve our stated goal of approximately $200 million in total annualized savings by 2012-2013, with costs to implement all initiatives expected to be in the range of $300-$400 million."
Summary of Restructuring Initiatives
- Avon said that the restructuring initiatives announced today will include realignments in its global supply chain manufacturing footprint and improvements in operating model effectiveness in key geographies. As a result, the company said that approximately 2,300 positions will be impacted globally, with a net reduction of approximately 1,200 positions when the initiatives are fully implemented by 2012–2013.
- The second-quarter 2009 charge will include costs-to-implement realignments of supply chain manufacturing operations, primarily in North America, Western Europe, and Central and Eastern Europe.
- In North America, the company said that it will close its facility in Springdale, Ohio, by mid-2012. The company said that production will shift to its manufacturing sites in Morton Grove, IL, and Celaya, Mexico, and to contract manufacturers. In line with this, the Springdale-based return goods operation will also close, with the function being relocated to another Avon U.S. facility or outsourced in the U.S. The existing customer service call center will continue to operate and will relocate in Springdale or the greater Cincinnati, Ohio vicinity.
- In Western Europe, Avon said that it is planning to close its manufacturing facility in Neufahrn, Germany, and that it has entered into the required formal information and consultation processes with the economic committee and works council in Germany. The company said that it expects to phase-out operations by mid-2011 and plans to transfer production volume to other Avon manufacturing facilities, including Garwolin, Poland and to contract manufacturers.
- In Russia, the company said that it is planning to improve processes, reconfigure equipment and streamline operations at its facility in Naro Forminsk in order to meet increasing demand more cost-effectively.
- Also included in the second-quarter 2009 charge are costs to continue improving Avon's operating model effectiveness in Latin America and Western Europe. In Latin America, the company said that it plans to regionalize commercial marketing and leverage other key business support functions such as sales support, supply chain and administration across multiple markets. Avon also said that it plans to integrate its commercial marketing departments in the U.K. and Spain to create a single consolidated commercial marketing organization to better serve the company's markets across Western Europe, the Middle East and North Africa.
"The initiatives announced today result from our 'constant turnaround mentality' and reflect our continuing determination to transform our cost structure, improve operating efficiencies, and be a stronger competitor globally as we drive Avon's turnaround strategies and address the current macroeconomic challenges," said Cramb.