Avon drifting into the doldrums
October 23, 2012 7:36PM
Updated: November 25, 2012 11:31AM
Dear Mr. Berko: When I asked my broker last May about buying 400 shares of Facebook, he didn’t think it was a good idea. He said General Motors had pulled its advertising because it wasn’t reaching the right audience and believed other advertisers might follow. He also said that he heard that hundreds of shareholders who owned Facebook prior to the initial public offering would be selling the stock and that this would drive the price down. And he thought Facebook’s earnings and revenues would be lower than investors were led to believe. I bought the stock anyway and now have a sizable loss. His comments turned out to be true. I think the public was scammed by Goldman Sachs, Merrill Lynch and JPMorgan Chase. I’m determined to sue the underwriters to recover my losses as some state pension funds are doing. But the lawyer my broker recommended said I was wasting my money and his time. Could your daughter, who I know is a lawyer, recommend a high-class yet inexpensive lawyer in Cincinnati for me?
On another note, what do you think of Avon Products, which pays 5.4 percent? My broker doesn’t like Avon, but I don’t mind owning it for a few years and getting 6 percent while waiting for it to go back up. Thank you for your advice.
— DL, Cincinnati
Dear DL: Everybody wants to sue Facebook these days. However, it seems you were born on a day when Medicaid had a severe brain shortage. High-class and inexpensive attorneys are as rare as vegetarian sharks. Even if you could find one, I doubt he or she would take your case. Because you were adequately informed of Facebook’s (FB-$20) deficiencies prior to the IPO, every lawyer and certainly a sober jury would ask why you ignored the stop signs and purchased the stock anyway. Frankly, I suspect that most lawyers would be too embarrassed to take the case and would tell you to take a long walk off a short pier. But the crybaby unions representing the pension funds of North Carolina, Arkansas and California will hire lawyers who can smell dried blood in a cedar closet to seek class action status and sue the underwriters. If those legal goons had any sense, they’d sue the pension fund advisers (whom the pension funds selected) for culpable stupidity, gross negligence and possible collusion with the underwriters. Nobody put a gun to your head and forced you to buy FB, and it’s not the underwriters’ fault that you refused good advice. Sue yourself, or take responsibility for your stupidity.
Avon Products (AVP-$17) is a floundering $11 billion personal care products, jewelry, apparel and accessories company that markets its merchandise through 6.5 million sales representatives in 103 countries. AVP generates 81 percent of its revenues and 95 percent of its profits from foreign operations. The worldwide economic slowdown has hurt revenues, pummeled net profit margins, slashed earnings and significantly decimated AVP’s return on equity. The Street is disappointed in AVP’s new management team, and the recent changes seem to have stalled the direction of the company rather than improve performance. Management has been reactive rather than proactive and keeps putting out fires rather than moving forward. Bad debt costs are increasing; bribery allegations continue to distract leadership; brand strength is eroding; and there’s a serious lack of product innovation to improve sales.
Layers of management have been added to layers of management, and AVP’s newly appointed CFO and COO are having trouble getting to know each other. As if that weren’t enough, AVP’s new CEO, Sheri McCoy, who emigrated from Johnson & Johnson, and Andrea Jung, the former CEO (now chairwoman of the board), get along like two cats in a hat.
Meanwhile, don’t depend on AVP’s 5.4 percent dividend. With expected 2012 earnings of 57 cents, down from last year’s $1.26, I’m willing to wager my private month’s ration of caramel skoobekittles that AVP’s dividend will be cut by 50 percent next year. It’s sad to see a 125-year-old company drifting into the doldrums. Let’s hope there’s an acquirer in its future.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.