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.
Maybe I am wrong ... but considering the state of the American economy, the typical American female may be more concerned with feeding herself or her family -- and either getting to work to keep a job -- or continue looking for work ... versus looking good/feeling fresh & trendy, yada yada yada.
Oh, I know ... there are ladies out there who might argue with me and say they'd rather not eat than go without makeup -- but I am afraid, before it was all over with, they may find themselves opting out in favor of daily nourishment versus rouge, eyeliner and blush.
Yes, there are plenty of women who will always be able to afford makeup -- but that number within the "typical" ranks may be dwindling somewhat. Discretionary income just ain't what it used to be. Not in the US, anyway.
SPRINGDALE,OHIO WAS WORLDS LARGEST AVON MANUFACTURING PLANT,SHE COMPLETELY SHUT IT DOWN THIS YEAR AND MOVED THE COMPANY TO MEXICO AND CHINA.THE SPRINGDALE.FACILITY WAS 110 PERCENT PRODUCTION, NOTHING BUT CEO GREED.EMPLOYEES WERE ASKED TO SACRIFICE COST OF LIVING RAISE FOR FIVE YEARS PRIOR TO HELP SAVE SPRINGDALE FACILITY,AND TO GIVE UP THEIR VIP INCENTIVE, SHE SHOULD OF HAVE LEAD BY EXAMPLE.SHE COST HUNDREDS IF NOT THOUSANDS OF JOBS IF YOU INCLUDE LOCAL BUSINESES AND TRUCK DRIVERS. THEIR LIVLEY HOOD,AND DAMAGED THE LOCAL ECONOMY GREATLY.WHAT WAS AVON FOUNDED ON .DOOR TO DOOR SALES I HOPE THE MEXICAN WOMAN AND CHINESE WOMAN WILL SUPPORT THE COMPANY AS WELL AS AMERICAN WOMEN HAVE. FOR 125 YEARS.WHAT ARE THE FDA GUIDLINES IN THESE FORIEGN COUNTRIES IF ANY.WONDER IF FOUNDER OF THE COMPANY IS ROLLING OVER IN HER GRAVE MRS ALBEE GOD BLESS YOU SORRY FOR THE CEO GREED. 50 PLUS MILLION A YEAR TOTAL.CEO OF P&G MAKES A FRACTION OF THAT
this may come as a shock, but not all americans are white and have anglosaxon names..welcome to the real world.
Quoted Text from S. Metz:
Here is a quote taken from Wikipedia - "While CEO of Avon Products in 2009, Jung received a total compensation of $6,997,015, which included a base salary of $1,375,000, a cash bonus of $3,043,906, options granted of $2,395,162, as well as $182,947 in other compensation."
In my opinion no 1 person (CEO) of any company is worth this type of compensation. Besides, I would think if you are making that type of salary you would have virtually no free time to do anything but eat, sleep & drink Avon but she found the time to sit on the Boards of Apple & General Electric.
I would think a far more practical way to run a large company would be to have a "team" of Executives at the "Top" where there could be multiple ideas & troubleshooting rather that just one person's as well as you would be creating more jobs & probably fall well bellow the compensation package of $6,997,015 that Miss Jung had made for just 1 year.
Well once again we have a board of directors who don’t know jack about running a company except into the ground. As an investor, do you really care if your CEO is charismatic? Think not. I wouldn’t care if the CEO told me I sucked as an investor as long as they produced in the stock price and dividends department. So why the hell are they leaving her as chairman? Can you spell bankruptcy?
I returned to Avon after several years and was shocked to see the decline in Rep appreciation. A push to make more money selling catalogs and samples to Reps instead of giving them a reason to sell their products was shocking. I remember the kind and encouraging environment just 15 years ago when I was trying to make some family money to compensate our income because I wanted to stay at home with my new baby. Now, they treat the reps more like customers than the consumers and they don't treat them very well!! I am no longer a rep because of that. I don't think they even have a clue to the real problem...
Avon has great lipsticks, probably the moist moisturizing and great colors I've ever tried. I just wish they would get the chemicals out, but they produce so much so quickly, that I'm sure that isn't on their mind. A shift toward natural and organic, paraben-free, and heavy-metal free makeup/lipstick would be great (that's what we're moving towards isn't it?). I can't believe that they have support for breast cancer, but turn around and sell a chemical-laden lipstick and makeup that is known to cause cancer (contradictory).
Anyway, they offer so many new things all the time, they need to have a section that is just the "usuals" and then offer new products. Take some advice from customers...they have good ideas. It's hit or miss with Avon product-wise and with their inexpensive gifts. Some are great and so is some of the jewelry but then sometimes it's awful. Sometimes they offer a great product, but it's gone the very next catalog like a great highlighter for cheeks or sparkly eyeshadow, trends for younger folk.
I'm in my 18th year of selling Avon. I continue to get new customers every year. Avon is a surprisingly big draw, so I disagree with the commenter that said no one even knows Avon exists anymore. And Mary Kay is so expensive, no one can afford it. That said, I've never been as embarrassed to be an Avon rep as I have been in the last few years. I may get new customers every year, but I lose just as many. Avon will introduce a new product in the brochure, and it will immediately become unavailable. Not on backorder, which is bad enough, but completely "sold out", and /or simply "no longer available". No explanation is ever given. My personal faves are when items in our Demo books (products not for sale in the national brochure yet, offered to reps to demo to customers) are not available. Yes, they sold out before it even went on sale. And then there are the endless backorders. I love telling my Christmas customers, "Your gift items are on backorder....but never fear! They'll be arriving in February!" Avon stopped listening to reps' complaints years ago, preferring to send a stock answer, typed in broken English (I sh*t you not), for whatever complaint we've lodged. And I've discovered recently that they don't reply to customers' inquiries anymore, either. And the economy isn't entirely to blame for slumping sales...I live in Pittsburgh (not exactly Beverly Hills), and people are spending just as much as they always have. At least they're TRYING to, but those backorders and sold outs save them tons.
SOMETHING needed to happen at the executive level. I hope to God this is it.
I think you are probably the only one who has hit it. I totally agree with the way the economy is that yes, people are not going to buy from their "Avon" Rep. If it means putting food on the table for my family versus other things in life, Food, will take precedent. I wonder how many other business that are in the "personal care" or consumables that individuals have cut back to make ends meet? How many people stretch out their haircuts now and don't go every 4 weeks to get their hair cut or colored. How about those manicures and pedicures that women get, I bet there are many who have cut them out or eek, learned how to do it themelves?
Just saying, if one has to make cuts it their individual situation, they will do whatever they have to, I think it is called "Survival"
I would guess they have a problem with respect and motivation, and the decline in sales and stock prices have nothing to do with product line, or marketing. The CEO should go, and take most of top management with her and then you'll see a real change.
They have forgotten about the importance of their employees (the reps), and focused their attention in the wrong area. Avon's success has always been a direct result of the people in the field, and from what I understand, that has changed dramatically over time.
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