Avon's turnaround plan does not instill confidence: analysts

Fri Jan 22, 2016 6:06pm EST
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By Yashaswini Swamynathan

(Reuters) - A rally in struggling cosmetics maker Avon Products Inc's (AVP.N: Quote) shares fizzled on Friday after analysts questioned the company’s ability to carry out its turnaround plan and sought more details.

Avon outlined plans to spruce up its flagging business at an investor meeting on Thursday, that included cutting $350 million in costs in the next three years, reinvesting in technological capabilities and making better use of social media.

Shares jumped 15 percent on Thursday after Cerberus Capital, who became Avon's top investor in December by taking a 17 percent stake, said at the meeting that Avon was "significantly undervalued" and that it had "zero concerns about liquidity".

Analysts, however, called Avon's plans "age-old", "familiar" and lacking constructive detail.

"We came away from Avon's analyst meeting without gaining confidence in a successful turnaround," B.Riley analyst Linda Bolton Weiser said in a note.      

 Avon’s plans also include seeking alternatives for its China business, which contributes only 1 percent to sales.

"These opportunities are not new, and Avon offered little detail to instill confidence that things will be different this time," Wells Fargo Securities analyst Chris Ferrera wrote.

Shares of the company fell as much as 5 percent on Friday, but were still trading above the life-low of $2.22 it touched on Wednesday.     Continued...

The Avon Products headquarters is seen in midtown Manhattan area of New York, June 21, 2013. REUTERS/Brendan McDermid