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Avon Surges on CEO Change — But AVP Stock Still Shaky

Despite a 5% dividend, SEC investigations mean uncertainty


Dow LeaderboardThere aren’t a lot of female CEOs in the United States — in the Fortune 500 list for 2011, just 12 women were at the helm of America’s biggest companies, down from 15 the previous year.

One of the most prominent executives on that list was Avon Products (NYSE:AVP) CEO Andrea Jung, who had led the company since 1999. She also is no stranger to corporate boardrooms — Jung was at Apple (NASDAQ:AAPL) as the iPad was unveiled and has been a member of the Apple board of directors since 2008. She also has served on the board of directors for General Electric (NYSE:GE) since 1998.

But that pedigree hasn’t shielded Jung from criticism as Avon has melted down recently. Revenue has gone nowhere for three years, the company has missed earnings estimates in three of the past four quarters and shares of AVP stock have lost almost half their value so far in 2011.

Throw in a federal investigation into whether Avon broke bribery laws, and you can understand why Jung is in the hot seat. For all these reasons and more, it was announced that Jung will become executive chairman on the first of the year and that the board of Avon will be looking for her replacement as CEO.

It’s ironic that Jung has put money in the pockets of “Avon Ladies” all around the world by signing on commission-based representatives from America to South Africa to Korea, but has struggled to make profits for investors.

So what’s next for Avon stock now that Jung is moving out of the picture? Well, Wall Street seems to like the move. Avon stock leaped on the news today, up around 7% Wednesday despite a down day for the market. And even after this surge, Avon’s 23-cent quarterly dividend still represents a yield of more than 5% — significantly above peers like Estee Lauder (NYSE:EL) with a 1% yield and Revlon (NYSE:REV), which offers no dividends. The 5% dividend is more attractive than even the payouts of diversified consumer products giants like Procter & Gamble (NYSE:PG) and Colgate-Palmolive (NYSE:CL).

But obviously that 5% dividend still would leave you severely in the red so far this year — and without an end in sight to investigations by the SEC, things could remain dicey for Avon. An internal probe at Avon uncovered millions of dollars of questionable payments to officials in China, Brazil, Mexico, Argentina, India and Japan — prompting external review from the SEC under the Foreign Corrupt Practices Act, even after Avon already fired four executives because of the findings.

U.S. regulators also subpoenaed Avon over contact with financial analysts in a separate investigation this year.

The removal of Jung might cheer investors who were disappointed with the downward spiral of the company — but it’s only half the battle. The real test will be fixing the corporate culture of Avon to win back Wall Street’s trust, boosting stagnant sales and beating back the SEC investigations that loom over the company.

No easy tasks for any executive. Maybe Jung is breathing a sigh of relief now that these issues are going to be someone else’s problem.

Jeff Reeves is the editor of Write him at, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.

Article printed from InvestorPlace Media,

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