Avon Products, Inc. filed additional details of the company’s previously announced $400 million cost savings initiative by 2016. The latest actions primarily consisted of global headcount reductions, including those related to the company’s service model transformation (SMT) project, and some additional headcount reductions in North America, as the company continues to reduce costs and improve organizational effectiveness.
Total charges to be recorded as a result of these actions are expected to be approximately $35–45 million before taxes, with approximately $35 million expected to be recorded in the fourth quarter of 2013. The charges primarily relate to the elimination of approximately 650 positions globally. The company expects these restructuring actions to result in annualized savings of approximately $40–45 million before taxes as part of the $400 million cost savings initiative.
Avon also announced its decision to halt further rollout of SMT, a multi-year global initiative, which enabled changes to the way Avon representatives interacted with the company, including an updated order management system. Earlier in 2013, SMT was piloted in Canada, causing significant business disruption in that market, and it did not show a clear return on investment. The decision was made in light of the potential risk of further disruption. The company’s focus is on stabilizing and growing the business and improving operating capability, which includes updating IT infrastructure in a way that delivers clear return on investment.
Although the company is halting SMT rollout, it remains committed to updating IT infrastructure and improving systems for its representatives. As a result of the decision to halt further rollout of the SMT project, the company also expects to record a pre-tax non-cash impairment charge of approximately $100 million to $125 million in the fourth quarter of 2013, reflecting the write-down of capitalized software.