Avon Products (AVP) CEO Sheri McCoy advanced the New York cosmetic giant's drive out of U.S. businesses by unveiling plans for a U.K. headquarters and proposing cuts to about 2,500 positions -- a combined effort expected to net up to $70 million in pre-tax savings by early 2017.
As Real Money reported, Avon has been delighting shareholders in its continued North American exit as the fragrance and cosmetics giant looks to, above all, start generating much-needed cash again. (Shares are up 86% from January lows, including a roughly 2% gain in premarket trading Tuesday.)
Avon initially parted ways with 80% of its North American operations in mid-December by accepting a $435 million cash infusion by private equity firm Cerberus Capital management, and has recently been cashing in on much of CEO Sheri McCoy's promise that such a move would translate into a meaningful turnaround. Cerberus currently operates the businesses as New Avon LLC, in which Avon still maintains a roughly 20% stake. (Avon is a member of Real Money's 20-member 'Stressed Out' watch list.)
"Today, we are taking another important step forward in the execution of Avon's transformation plan," McCoy said in a release. "With the recent completion of the sale of the North American business, our commercial operations are now fully outside of the United States, allowing us to dramatically rethink our operating model."
Such a move was the primary driver to Sterne Agee's recent upgrade of Avon's annual earnings guidance in a late-February report to $0.29 per share from $0.18.
"The actions we are taking today will bring our corporate and commercial businesses closer together, which will drive efficiencies, improve operational effectiveness and deliver significant cost savings," McCoy added. "The company will reduce corporate infrastructure and will transition, over time, the location of Avon's corporate headquarters to the United Kingdom, where the Company has significant commercial operations."
Avon said it expects about $30 million this year in pre-tax savings related to a 1,700 headcount reduction this year, and roughly $65 million to $70 million in total savings by the beginning of 2017 along with the remainder of the cuts.
"2016 will be a transition year," Sterne Agee's April Scee and Theo Brito said in a March report. "With sale of North America to Cerberus, re-constituted core should gradually improve throughout year behind incremental second-half pricing, moderating foreign-exchange pressure, and growing cost savings. We forecast about 2% organic topline growth and operating margin flat to slightly up."