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Late Monday night, Avon Products (NYSE:AVP) announced a global headcount reduction of approximately 1,500 positions. Furthermore they announced that they will exit the South Korea and Vietnam markets. The charge to implement this restructuring is expected to be $80-90M with $50-60M to be recorded in the fourth quarter of 2012. These actions represent the initial steps in their previously announced cost-savings plan which targets $400M in annual cost savings by the end of 2015. Three years to implement $400M in cost savings seems slow given the rapid rate their earnings power has been deteriorating. Furthermore, the savings are primarily coming from SG&A which is typically an area that is easy to cut quickly. The three year reduction target is on the order of a 7% reduction in SG&A which isn't huge percentage wise. From the slow action it appears that they are putting lipstick on a pig.

Avon's revenue dropped 6.4% for the first nine months but their diluted EPS dropped by an alarming 77%. Management expressed disappointment in the third quarter results and reacted by reducing the quarterly dividend from $0.23 per share to $0.06 per share. In addition to the revenue drop, gross margins were negatively impacted.

Avon has had significant drama this year as Chairman and CEO Andrea Jung was pushed aside amid the turmoil. She was replaced as CEO in April and will step down as chairman at the end of the year. Furthermore, in April, Avon receive a buyout offer from Coty for $23.25/share in cash which was a 27% premium over the three month volume-weighted average price for Avon. Avon quickly rejected that offer and later received an even higher offer of $24.75/share from Coty. Avon was slow to respond to that offer and the offer was pulled. Avon last traded at $14.47 or 41.5% lower than the highest buyout offer. The Avon board clearly needs a bit of makeup to cover up the mistakes of not acting on the offers. While the buyout proposal was on the table, more bad news hit Avon as a VP left amidst a bribery scandal. Next, the General Counsel departed. In October, the company received a warning letter from the FDA for marketing violations. Clearly, Avon is executing poorly and needs some changes.

Avon has missed earnings estimates for the last four quarters so I find it suspect that they will execute on analysts estimates of EPS of $0.92 for 2013. They are trading at a substantial premium to their book value of $3.36/share and tangible book value of $1.72/share so there isn't any balance sheet support to their stock price if earnings continue to disappoint. The third quarter conference call transcript provides an overview of areas of the business that require overhaul. It is quite clear from this transcript that Avon has a long road ahead of them to return the company to a healthy state.

If it weren't for the rumored returning buyout offer from Coty, I would suggest that Avon is a great short. The fundamentals just look like more bad is coming before good. However, with a potential buyout in the wings, I would be hesitant to short the name now but would be watching closely for an opportunity assuming the buyout chatter slows down.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Putting Lipstick On A Pig: More Tough Times For Avon Products