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Avon Sees Restructuring Benefits

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By: Jamie Matusow

Editor-in-Chief

Avon Products Inc. said on it expects total savings and benefits from its product simplification and strategic sourcing plans combined with other restructuring moves to exceed $700 million. Avon said its operating margin will take a year longer to recover than initially planned, and is expected to be at the 2005 level of 14.1 percent in 2008. Over the long term, revenue growth should average mid-single digits, the company said. The company also expects to boost spending on advertising by 35 percent in 2007 to approximately $340 million. New York-based Avon is in the middle of a turnaround plan that it announced in late 2005, which it hopes will win back its straying customers. As part of that plan, it has cut hundreds of jobs and spent $85 million in advertising in the last quarter of 2006. The company said previously that it expects to benefit by about $230 million in 2007 through these restructuring initiatives. Avon, which is the world’s largest direct seller of cosmetics, said that it expects to benefit from its strategic sourcing plan beginning from the second half of 2007, and from product simplification over the next three years. Annualized benefits from these measures alone are expected to be over $400 million when fully implemented, the company said. The company said its original restructuring plan, which will cost the company $500 million, will yield over $300 million of annual savings.

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