Avon shares rise on news of CEO search

AP News
Posted: Dec 14, 2011 2:54 PM

Shares of AVON Products Inc. jumped Wednesday, a day after the cosmetics company said it was looking for a new chief executive to help put it back on a growth track and fix its financial and regulatory problems.

THE SPARK: Avon said Andrea Jung, its current chairman and CEO, will continue to serve in both roles until a successor is found and then work solely as chairman. Jung has been Avon's CEO since 1999. The company plans to split the roles of CEO and chairman in 2012.

THE BIG PICTURE: New York-based Avon has struggled for some time with erratic financial results and regulatory investigations. Its net income fell in its most recent quarter and missed market expectations.

Known in the U.S. for "Avon ladies" who go door-to-door selling its cosmetics, the company announced in October that the Securities and Exchange Commission is investigating its contact with financial analysts in 2010 and 2011. The company also said then that it is reviewing all aspects of its business and withdrew its revenue forecast for the year.

The SEC also is investigating Avon's probe, begun in 2008, into alleged bribery by its employees in China.

THE ANALYSIS: Tuesday's announcements prompted Caris & Co. analyst Linda Bolton Weiser to raise her rating for the company to "Above Average" from "Average."

"While this could signal further operating deterioration in the near term, we believe there is vast opportunity for improved long-term performance under a new CEO," Weiser wrote in a note to investors.

She said that while the stock may be volatile in the coming months, she expects drops in the share price to be limited.

Citi's Wendy Nicholson backed her "Buy" rating for Avon, saying that the company can do better and "brighter days lie ahead." But she cautioned that investors may not see improvements soon.

"Given the breadth and magnitude of Avon's problems, we think investors should acknowledge that there is no easy fix, and that any change _ whether strategic or just ironing out execution wrinkles _ will take time," Nicholson wrote in an analyst note.

THE SHARES: Up $1.01, or 6.3 percent, to $17.15 in heavy afternoon trading, after peaking at $17.93 shortly after the market opened.

Over the past 52 weeks, the shares have traded between $16.09 and $31.60. Even including today's rise, they've lost about 45 percent of their value since early May.