June 24, 2024

Avon Tries a New Turnaround Plan, and Wall St. Is Anxious

Ms. Jung ran Avon Products for 13 years and, by the time she left as chairwoman in December, this venerable beauty products company didn’t just need a makeover — it needed a full-body lift. One problem after another, from earnings disappointments to a snubbed takeover offer, earned her a reputation as one of the nation’s worst chief executives.

Now her successor, Sherilyn S. McCoy, is hurrying to clean up the mess and win back investors’ trust. It won’t be easy. Since being named C.E.O. in April, Ms. McCoy, who is 54, has embarked on an ambitious turnaround plan that includes wringing out $400 million in costs, sharply increasing sales and almost doubling operating margins within three years. And Wall Street is growing impatient. Ms. McCoy, who joined Avon after a 30-year career at Johnson Johnson, has yet to explain in detail how she intends to achieve those goals. Analysts hope she will do so next month at an industry conference.

“Avon seems to be the perennial turnaround story,” says Jason Gere, a managing director at RBC Capital Markets.

It has been a remarkable comedown for Avon, which traces its history to 1886, when David H. McConnell, a door-to-door book salesman, discovered that women were more interested in his fragrance samples than his books. And, Mr. McConnell concluded, who better than women to sell to women? And so the Avon Lady was born, and success followed success. Avon eventually went public, and its stock soared. It later pushed into fast-growing markets like China and Russia ahead of many of its peers. Today, the company, which is based in New York, operates in more than 100 countries and has more than six million sales representatives.

But financially, the Avon empire is a shadow of its former self. As growth faltered and other problems arose, Avon’s share price plummeted; it is now at $17.15, down from a high of more than $46 in mid-2004. After years of disappointing earnings, Ms. McCoy has cut its quarterly dividend by 70 percent and announced plans to lay off 1,500 employees and exit two weak markets, South Korea and Vietnam. These cuts account for only 20 percent of her proposed cost savings, and analysts want to know where the rest will come from.

Ms. McCoy, along with other executives and Ms. Jung, who remains a senior adviser at Avon, declined to comment ahead of an earnings report scheduled for Feb. 12.

THE question, of course, is what Avon will do next. During the last three months of 2012, sales were virtually flat.

“The challenges that Avon faces developed over time, not overnight, and it will take time to implement the solutions as well,” Ms. McCoy said when she unveiled her goals in November.

But this is the third turnaround plan that Avon has announced since 2005, and stockholders are skeptical.

“I need to see a little more fleshing out of the strategic plan that gets her to these targets because she has given very aggressive targets,” says Linda Bolton Weiser, senior analyst at B. Riley Caris.

Mark Astrachan, an analyst at Stifel Nicolaus, says: “I have a ‘show me’ attitude.”

Ms. McCoy has made some strides, notably renegotiating the terms of the company’s debt in late December to give Avon some breathing room.

“It’s an encouraging sign — the lenders were willing to work with Avon,” says Lisa Quateman, managing partner in the Los Angeles office of Polsinelli Shughart, a law firm, who works with companies that do business internationally.

If the business continues to deteriorate, however, Avon’s debt could become an issue again. Avon has about $3.3 billion in debt, although it had $1.1 billion in cash as of September, providing some cushion.

“It’s hanging over Avon’s head,” Ms. Quateman says of the debt burden.

How did so much go so wrong? The story really starts around 2005, when Ms. Jung was in her sixth year as C.E.O. Rising competition, an outdated electronic supply system in Brazil, missteps in Russia and China, bloated management, misdirected marketing — all combined to choke off profits. By 2009, Liz Smith, the company’s highly regarded president, had left. A flurry of regional managers exited as well. Even after Ms. Jung cut $1 billion in costs in the latest of two restructurings, profitability kept dwindling. As the share price sank, the company began to look like takeover bait. Rumors circulated that L’Oréal might swoop in.

Critics say Ms. Jung simply made bad decisions. For instance, they say, Avon spent $3 million on a Super Bowl ad in 2009 to recruit sales representatives but didn’t invest enough to train the new employees. It spent $650 million in 2010 to acquire Silpada, a direct seller of silver jewelry, only to write down the investment the next year largely because of a rise in silver prices.

Article source: http://www.nytimes.com/2013/02/03/business/avon-tries-a-new-turnaround-plan-and-wall-st-is-anxious.html?partner=rss&emc=rss

The Boss: Ballrooms and Boardrooms

My parents always dreamed that I would be a teacher, and so did I. From very early on, I did well in school; I was the valedictorian of my high school class, vice president of the student body, president of the math club and editor of the school paper.

I majored in math and classical languages at Canisius College in Buffalo. I received my master’s degree and started working toward my Ph.D. at the University of Buffalo. But then Kodak came in and started interviewing. I was hired as a software engineer, doing programming, and left graduate school. Within three years, I was promoted to supervisor and then advanced to senior levels of management.

Along the way, I became involved in educating people about leadership. Early on, I tried to understand what it takes to get people to follow you. How do you create a vision, and how do you inspire an organization? I learned how to motivate a diverse team of people and how to encourage it to go after a mission.

You don’t learn those skills in college. I think you learn by doing and you learn by having some great role models. I have been fortunate to have people who helped me build those skills. I’m close friends with my first boss at Kodak, John Gallenberger, along with my last boss there 20 years later, Carl Kohrt, who now serves on the board of my company, Kinetic Concepts.

I made a decision in 1988 that I wanted to put technology to use in health care; I wanted to do something that helps patients. I was recruited to Johnson Johnson in the late 1990s and ran two of its businesses — first in Tampa, Fla., then in Raritan, N.J.

Johnson Johnson is smack in the middle of health care, which is exactly what I wanted to do. It’s the same at KCI, where I’ve been the chief executive for about five years. We provide, among other things, regenerative medicine products and high-end wound healing products that use a technology called negative pressure wound therapy to remove infection, thus speeding the healing process.

I’ve been married to Frank Burzik, my high school sweetheart, for 40 years. We met while roller-skating when I was about 13. We have always liked to dance socially; we used to go to the Rainbow Room in Manhattan. We now go ballroom dancing together. In fact, we just built a house with a ballroom in it.

Ballroom dancing can teach you a lot about both life and business. You can dance well only if you’re connected; you learn the power of the partnership. I have to be so unbelievably connected, myself as the follower and my partner as leader. I have to intuit in fractions of seconds how to respond to a lead. So you learn to read a person’s mind.

I talk to my people at work about ballroom dance, about how to be connected, and to be aware of musicality. In a business sense, this means learning a three-dimensional presentation of yourself that allows you to understand how to harmonize with others in the organization, as well as with customers and patients. It gives you the insight and intuition to anticipate and take initiative quickly, and then to follow through in an informed way.

Once or twice a year, I invite my leadership committee members and their spouses over to my house and we dance. And they’ve turned out to like it. A few are even taking ballroom dance lessons now. I like to think it’s my influence.

As told to Abby Ellin.

Article source: http://feeds.nytimes.com/click.phdo?i=ccb54c261b70f3fd9b4a646d504d34b0

Merck’s Quarterly Profit Surges on Sales and Cost Savings

The results beat Wall Street expectations and suggest drug sales and cost savings from acquiring Schering-Plough were starting to pay off.

Merck shares rose 18 cents Friday to close at $35.95. Net income in the quarter was $1.04 billion, or 34 cents a share, up from $299 million, or 9 cents a share, in 2010’s first quarter.

Revenue edged up 1 percent to $11.58 billion. That includes several billion dollars from products added in the Schering-Plough acquisition in November 2009. Excluding numerous one-time items, net income was $2.86 billion, or 92 cents a share.

On that basis, analysts had forecast earnings of 84 cents a share and revenue of $11.38 billion. Analysts typically exclude one-time items in their estimates.

The $1.82 billion in net charges included $1.58 billion in merger-related write-downs on the value of assets and research, $126 million in restructuring costs and a $500 million payment to settle arbitration with Johnson Johnson over the rights to two drugs. A year ago, Merck had charges totaling $2.31 billion.

Merck, based in Whitehouse Station, N.J., raised the bottom end of its 2011 profit forecast by 2 cents, predicting $3.66 to $3.76 a share, or $2.04 to $2.39 including one-time charges.

Production costs fell 22 percent to $4.06 billion, partly because Merck has sold some factories.

A Jeffries Company analyst, Ian Hilliker, wrote to investors that the higher revenue and lower-than-expected costs gave Merck a strong “earnings beat.”

Top-performing drugs included Singulair and Januvia, plus some drugs acquired with Schering: the allergy spray Nasonex and Remicade for immune disorders. Their growth was partly offset by a $356 million drop in revenue from two former blockbuster heart drugs, Cozaar and Hyzaar, caused by generic competition.

Januvia and Janumet, a pill that combines Januvia with the generic diabetes drug metformin, had combined quarterly sales that topped $1 billion for the first time, up 47 percent.

Total pharmaceutical revenue rose 2 percent to $9.82 billion. Two units Merck acquired with Schering, animal health and consumer health, also performed well. Animal health revenue rose 7 percent and consumer health 6 percent, on strong sales of Claritin allergy pills and Coppertone sun care products.

Article source: http://feeds.nytimes.com/click.phdo?i=09eac9cc0ab8e507763c4b10818d1f30

DealBook: Johnson & Johnson Holds Deal Talks With Synthes

Johnson Johnson is in talks to buy Synthes, a Swiss medical equipment maker, for a deal potentially worth $20 billion, a person briefed on the matter told DealBook.

A sale would be among the biggest health care mergers in recent years and the largest ever by Johnson Johnson.

Discussions are continuing and may still fall apart, this person cautioned.

Shares in Synthes closed up 6.2 percent on Friday at 138.70 Swiss francs, amid speculation that the company was in talks for a potential transaction.

Synthes, which is based in West Chester, Pa. but is listed on the Swiss stock exchange, is a big manufacturer of implants to repair bone fractures, as well as surgical power tools. North America accounts for roughly 60 percent of the company’s revenue.

Its largest shareholder is its chairman, Hansjörg Wyss, who with his family owns about 47.8 percent of the company.

A 1965 graduate of Harvard Business School who joined Synthes in 1977, Mr. Wyss is the second-wealthiest person in Switzerland, with Forbes estimating his net worth at about $6 billion. He donated $125 million to Harvard University in 2008, the biggest single gift in the history of the school.

Representatives for Johnson Johnson and Synthes were not immediately available for comment.

News of the talks was first reported by The Wall Street Journal online.

Article source: http://feeds.nytimes.com/click.phdo?i=2dd9a5015997cb0f42d2741382a4dffb