Avon's stock jumps as CEO is shoved aside

Once considered a young star, Jung has been ousted after years of faltering operations.

By Melly Alazraki Dec 14, 2011 11:50AM

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.

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117Comments
Dec 14, 2011 4:17PM
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Over a decade ago I was an AVON rep. Their business model barely pays 10% of the total sale to the rep. When combined with all the tools the rep has to buy, the rep is in the negative cash flow for every sale made. When I would share my ideas about how to gain more sales with the person who was supposed to mentor me-- suspiciously another rep would suddenly monopolize that tactic. AVON reps are dog eat dog maybe more than traditional business people because AVON reps stab their new reps in the back and do it with a smile. As for the products, I liked them-- until 2 years ago a rep inside the assistant care facility where my aged mother lived targeted my mother with the clothing and show line. My mother could not fit any of the items she purchased. AVON makes it difficult and unprofitable for reps to return items. My mother, not wanting to cause problems for the rep, was left trying to gift the items to people who could not fit them either. If AVON would stick to its skin care line and some seasonal products, I would have considered remaining a customer. I turned away from AVON and never looked back.The reality is that shareholders want profit. Selling its soul for profits backfired on AVON like it backfired on Mr. Madoff. We little ants don't count in the business world until enough of us speak our minds using our wallets. I hope the salary of the CEO becomes tied to its profits so that if the reps and customers go down, the CEO, Chairman and the board goes down too. I noticed Ms. Jung is still at AVON earning lots of money. She is not going anywhere and AVON won't change anytime soon.
Dec 14, 2011 4:15PM
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Most female CEO's got there either though affirmative action or they slept their way to the top. At best they are mostly mediocre compared to men.
There will never be a female Steve Jobs or Warren Buffet to name a few

Dec 14, 2011 4:15PM
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I feel that not only the CEO but the Board needs revamped as well.  Avon has  been suffering but if as stated the tenure of the Board is 10 years then yes they will be set in their ways.  It is time for a fresh approach with new creative minds working together to put this company back on track.  As an individual who has done consumer sales (including Avon) as well as corporate sales, marketing and management. one of the keys to success is creativity and reaching further than your competitors.......none of which Avon is doing right now.  Perhaps outside help would be advisable at this time as some of the people inside are too close to the problem otherwise the insiders need to take a closer look at what the company is actually working with over and above the CEO position as the turnaround is going to be not only a slow process but an uphill battle.  The potential is there for Avon to bounce back but the players need to change or open their minds to new ideas.

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
Dec 14, 2011 4:12PM
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I've been a rep for going on 3 years and because AVON has been so publicized it seems like we have a rep for every 5 streets in town and now those of us who had a decent business can't make it because there are so many reps now.  I'm looking to quit because I'm not even making a quarter of what I used to.
Dec 14, 2011 4:12PM
Dec 14, 2011 4:09PM
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My bad, the headline "Avon CEO stripped of title" had me visulizing them ripping the CEO banner off her bare chestDevil
Dec 14, 2011 4:08PM
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There are such a variety of misinformed comments here, hard to know where to begin. Faith717 is the worst one. It is amazing how many Americans see a foreign name and make all sorts of assumptions. My name is not of Anglo-Saxon origin, and I still get rude remarks that I try to dismiss as sheer ignorance. I was born here and my heritage was important to my parents, so thankfully I did not get stuck with a name like Debbie or Susie. I digress, Yung had a good run at Avon for many years. and it is not surprising to see that she has been asked to step down,. it is just surprising to see so much made of the fact, CEOs are asked to step down all of the time as trends change and new "vision" is needed to move a company forward. There is something called the "lipstck effect" that contends that in poor economic times women will buy an "affordable" lipstick to help make themselves feel good,.instead of buying something luxurious. Nowadays that has extended to nail polish as well, since it comes in a large variety of colors it never used to before, right or wrong ( blue or gray, I think is wrong) but a lipstick will long a lot longer than foodstuffs that will disappear in a moment. If a woman feels good about herself, and a lipstick helps to do that, it is a small price to pay. Avon was a competitor for years, in all demographics. but mostly middle-income homes, regardless of age. Lauder's market is geared towards older women, especially fragrances.  Revlon was all over the board as well, but we now have so many more choices for all socio-economic levels. And the nice thing is, as we grow more pragmatic as a nation of consumers, some women are buying drugstore brands more frequently until they can afford the pricier items again or until they realize the less expensive product works just fine.  The economic "downturns" we have been experiencing of late are good ways to teach us en masse, that spending constantly is a bad idea, living on credit, purchasing things just to keep up and to be brainwashed by advertisements, it is high time we grew up collectively. No one needs to buy a new car every two years, waste of money. These are very difficult times and the end result will be a shift in priorities for everyone (hopefully). My biggest hope is one that we seriously need to consider - jettison every credit card you own, we need to realize how much money those banks have made from all of us for far too long. Avon will no doubt go the way of Borders one day, simply because our entire retail landscape has changed so much. CEOs will be fired, and someone as good as Yung was will need to refocus their energies in another market. "The times they are a changing..."  
Dec 14, 2011 4:08PM
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If she was no good as ceo and chairman why keep her on as chairman, time to part ways.
Dec 14, 2011 4:08PM
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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!

 

Dec 14, 2011 4:05PM
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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.

Dec 14, 2011 4:05PM
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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.

Dec 14, 2011 4:04PM
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I hope the new leadership will not be so quick to "dump" the old stand-by perfumes, skin care, etc.  I also would like either a warning about changing products or to participate in a survey before changes are made.  Not all customers like the changes and are clammoring for their old products.  The representatives some times stock pile some items, but eventually a buyer cannot get their products again...namely, Occur perfume and nutuera liquid freshner.  Also, the jewlery doesn't need to be all new-fashion.  What I liked about Avon was the selection.  Now, the clothes (besides only fitting size three models) shoes and jewlery can be found in any catalogue.  Everyone sells this stuff.  If you were savvy, you'd look at your stats.  who is buying Avon products?  Cater to your audience. 
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If ya ask me, make up makes women look uglier anyway!
Dec 14, 2011 3:46PM
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Whew!  I thought they were ousting her because she used Mary Kay!!!
Dec 14, 2011 3:44PM
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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

Dec 14, 2011 3:41PM
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I sold Avon twice.  I love the Avon products, but I got tired of all the back orders.  When a client ordered something for specific occasion - especially Christmas - most of the time it was back ordered.  I love the hair care line, but they discontinued the hair spray, gel, and moose I liked.  I love the new line of face cream for older women and I don't mind paying $38.00 a jar for it, but I have so many of the previous skin care lines, that I'll never have to buy it again.  As far the clothes, the sizes are so off it's ridiculous and the shoes aren't comfortable.  Most of the jewelry is nice.  I agree with the comment that they should stick to make-up, skin care, and hair care and leave the clothes, toys, and accessories to someone else.
Dec 14, 2011 3:40PM
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man!  how would a face like that sell beauty products...
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