Avon's stock jumps as CEO is shoved aside
Once considered a young star, Jung has been ousted after years of faltering operations.
Avon Products (AVP), the 125-year-old cosmetics company, has finally ousted CEO Andrea Jung. Investors were relieved to hear Tuesday that Jung is leaving executive management. Shares rose by nearly 10% Wednesday morning.
The company calls the move a separation of the the roles of chairman and CEO, saying Jung will be named executive chairman, while the board of directors "will work with" her to search for a CEO. Until they find one, Jung will continue in her dual role. But no matter how you call it, the message is clear.
"I believe the time is right to separate the chairman and CEO roles," said Jung, who has been Avon's CEO since 1999. "A new CEO will provide a fresh lens and additional operational and executive leadership."
The crux of the matter is in that last sentence. When Jung started, she was the one providing the fresh lens. She helped the company push into emerging markets and has been credited for much of Avon's growth at the beginning of the century. In the first half of her tenure, the stock indeed nearly tripled.
But Jung, who also sits on the boards of Apple (AAPL) and General Electric (GE), has faltered in recent years. The troubles began more than five years ago, and the door-to-door-sales company has continued to stumble ever since.
This year alone, Avon's share price has sunk about 45%, a far worse performance than the overall market. The S&P 500 has declined only 2.5% year to date. It gets even worse when it comes to competitors, such as Estee Lauder (EL) and Revlon (REV), whose stocks are up 33% and 47% so far this year. The stock price reaction was a direct result of recent poor earnings.
The pressure on the board to change top management increased after recent third-quarter earnings disappointment -- the fourth quarter in five recent ones in which the company has disappointed investors. It was magnified by the company's saying it no longer expects to meet its 2011 goals.
Worse, the company also revealed an SEC probe about the company's contact with analysts and other Wall Street executives. This was on top of the previous bribery charges regarding foreign officials. The stock sank 19% that day.
Is the eventual change in top management a buy signal, then? No doubt there are positive outcomes as a new CEO, combined with other recently appointed top managers, such as CFO Kimberly Ross, could breathe new life into the business. The stock is also much cheaper than its competitors, trading at a much lower multiple, which adds to current attraction.
However, several problems remain. Avon's board has been long criticized for allowing the situation at the company to deteriorate this long. As Morningstar explains, the average tenure of a director at Avon is 10 years, which means the board could be too set in its ways and may not allow needed changes. The turnaround, therefore, may be slow to come, even after Jung's exit.
-- Melly Alazraki is a freelance financial writer.
There will never be a female Steve Jobs or Warren Buffet to name a few
As some have also stated this is partly due to the economy but then again Corporate America needs to shift as well and stop negating the fact that it is the workers who primarily keep any organization afloat. I noticed that some have commented on the fact that Yung sits on the boards of other companies however Apple stock is on the decline right now for the simple fact that even though overall the products are good - there are numerous glitches and they are also costly and I have followed Apple since the days of their first computer and who is to say the direction it will take now that Steve Jobs is no longer here?? I believe it is a feather in her cap to be on these boards professionally however it is usually the Board of Directors that "makes or breaks" organizations.
Just my take on the subject - Carmy Strong
The title of your article is a ploy to read it and VERY misleading! The woman should be plauded as an EXTREMELY successful business woman! She tripled the stock of a major company and sits on the board of 2 more fortune 500 companies! REALLY? How much more do you want from her? It is a mutual decision and there is ALWAYS more to the story. My question is why haven't we seen her picture in the news with a POSITIVE title to the article you are presenting? AHHH the world we live in today...I hope she reads these posts and shame on you!
No as much her fault as a changing marketplace. Door to door emphasis is tougher in an economy with increasing internet sales.
Also the competitors who do retail and internet sales probably outsources most of their service jobs while Avon is 100 percent all American. Unfortunately business policy in the US is set to favor those who export jobs over the companies that keep them here in the US. We'er told that raising taxes and regulations on business in the US will "Punish people who send jobs overseas" when in reality it hurts the people who want to hire employees and do business here while those who sent jobs overseas escape most of the regulations and fees and actually profit.
Fix that policy and we'll help companies like Avon.
The problem with this company is the same as it is all over. They don't give a crap about the people who are WORKING for them. I was an Avon Rep for about a year. It was ridiculous to try to be successful at it. You had to place an order every campaign. They set you up with an internet site and then you end up competing with Avon's own website for sales. Oh, sure, the website asks you if you'd like to find a local rep, but if you don't, they let you order off of the website and none of the reps get credit for the sales. Sure. Then there was the area that I lived in. The district director had one favorite area rep who was allowed to set up a store front and then they gave her all the county fair sales. I was then told to bring all of my customers to a holiday preview party held at this chick's store. I think Avon would do better if it took better care of it's sales people and stuck to the door to door sales premise rather than allowing fixed stores and websites.
My ignorance but aren't all of you Avon Reps. the actual shareholders of the company? i mean if you do well, the company does well. So I have to wonder why on earth is Avon a publicly traded company. I have the answer. The CEO wants to profit as much as possible while doing as little as possible. I mean you guys, the reps do all of the work, and the catalog, which agreeably needs an update, a theme, a new look, does the rest of the work.
So my question is this, why is the head of your company, which is essentially a marketing company, allowed to work for Apple and General Electric--two of the most valuable stocks on the market today?
I am sure she will blame the poor performance on the economy. She should be looked at for insider trading as well? Because as i understand, most CEOs get a buyout clause or farewell bonus as part of their contract..
any thoughts? otinoco at hotmail
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The grocery giant expanded its Simple Truth line nationwide 2 years ago and has seen consistent growth.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.