Avon plans restructuring

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NEW YORK (MarketWatch) -- Avon Products Inc., the world's largest direct seller of beauty products, said Tuesday it will undertake a multi-year restructuring aimed at improving revenue growth and helping it spend more on marketing and advertising.

Avon AVP, +5.56%, based in New York, expects the restructuring to cost $300 million to $500 million, with most charges incurred in 2006. For the fourth quarter, Avon expects to record costs of $20 million to $40 million, or 4 to 7 cents a share.

The restructuring will include streamlining transaction services through outsourcing and moves to low-cost countries, as well as flattening the organizational structure, the company said. Avon didn't say in a news release how many jobs would be cut.

The company expects the restructuring to start boosting revenue growth and operating margins in 2007. For 2006, Avon sees revenue to be flat to up slightly. After 2006, the company expects revenue growth in the mid-single digit percentage range.

Avon, which has issued two profit warnings since July, has seen its U.S. business weaken partly because of higher gas prices and too little investment in advertising and marketing.

The company's overseas operations have been troubled by similar problems, and its business in China has stumbled as Avon transitions to a direct-selling model there. China partially lifted its ban on door-to-door sales, and Avon's existing boutique owners in that country are worried about competition from the company's own direct sellers.

Shares in Avon closed at $24.86, down $2.21 or 8.2%.