(Reuters) – U.S. regulators are formally investigating whether Avon broke bribery and disclosure laws, in a further blow to the cosmetics company which is again reassessing its strategy after quarterly profit fell far short of expectations.
Shares of Avon Products Inc closed 18.3 percent lower on Thursday, as analysts blasted Chairman and CEO Andrea Jung and questioned whether she and her team can come up with a turnaround plan as quickly as they hope to.
Analysts took longtime leader Jung to task during Avon’s quarterly conference call, as they have in prior quarters.
“Why should investors believe management and the board have any control over the business at this point?” asked Stifel Nicolaus’ Mark Astrachan, who downgraded Avon to “hold.”
“Look, the buck stops with me,” replied Jung, who has been chief executive officer since 1999 and chairman since 2001. In its quarterly filing on Thursday, Avon disclosed that the U.S. Securities and Exchange Commission had subpoenaed Avon over its contact with analysts and others as part of an investigation related to fair disclosure under Regulation FD.
Under Jung, Avon has turned in poor performances in key markets such as Brazil and Russia, poured tens of millions of dollars into its international bribery investigation and struggled to stem declines in a sluggish U.S. market.
New York-based Avon does most of its business outside North America. Other markets accounted for nearly 82.2 percent of revenue and 98.4 percent of profit in the third quarter.
The world’s largest direct seller of cosmetics, which has been celebrating its 125th anniversary with celebrity-studded events this year, now plans to assess long-range business plans and give an update during the first quarter of 2012.
“It strikes me that you guys are so totally screwed up, in so many ways, the change has to be radical,” said Citigroup analyst Wendy Nicholson, who added that a first-quarter meeting may not give Avon enough time for a comprehensive review.
She also questioned whether Avon would consider other steps, including hiring consultants, exiting another market as it exited Japan or possibly taking the company private. Avon could be a target for a private equity firm in the future, but for now the investigation is too risky for any buyer to take a look at it, consumer industry bankers said.
