NEW YORK ? Avon Products Inc. said Thursday that its net income fell 1 percent in the third quarter because implementing a software system in Brazil disrupted business there. The cosmetics direct seller withdrew its 2011 revenue outlook due to that and the uncertain economy.
The company also said the U.S. Securities and Exchange Commission is investigating its contact with financial analysts in 2010 and 2011 and matters related to Avon's own probe into bribery in China and other countries that began in 2008.
Results from Avon, whose brands include Skin-So-Soft and Anew lotions and Mark makeup, fell short of expectations and the stock slid $4.36, or 19 percent, to $18.66 in morning trading.
Due to the Brazil and the weak economy, Avon no longer expects to have mid-single digit revenue growth in 2011, said CEO Andrea Jung. She said the company is assessing its long-term business plan and will give an update in the first quarter of 2012.
Avon makes most of its revenue outside the U.S. In Latin America, which accounts for about half of Avon's revenue, revenue rose 11 percent. Revenue in Brazil rose 5 percent but declined 3 percent when currency effects were excluded. Revenue rose 17 percent in Mexico, or 12 percent stripping out the effect of a weaker U.S. dollar, and 22 percent in Venezuela.
Companies that sell goods internationally get a boost from a weaker dollar when they convert revenue in foreign currencies back into the dollar.
The problems in Brazil, usually a stronghold for Avon, stem from implementing an "enterprise resource planning" business management software system, which caused "greater disruptions than we anticipated," said CEO Andrea Jung.
After weak results in the third and fourth quarter of last year, Brazil had been recovering for the past two quarters, so the new problem is a blow to Avon. Analysts have questioned whether the problems in Brazil are actually site-specific or indicative of broader problems with Avon's strategy.
In North America, which accounts for about 18 percent of revenue, sales fell 7 percent.
Total units sold fell 5 percent during the quarter and the number of Avon's direct sellers was flat.
Avon cut prices during the recession to spur shoppers to buy its skin care and makeup products. But it has been increasing them recently to offset higher raw material costs. Costs rose during the July-September quarter, but were partly offset by higher selling prices and a weaker dollar, the company said.
The New York company's net income was $164.2 million, or 38 cents per share, in the July-September quarter. That's down from $166.7 million, or 38 cents per share, last year.
Revenue rose 6 percent to $2.76 billion. Analysts expected earnings of 46 cents per share on revenue of $2.83 billion, according to FactSet.
Beauty sales rose 8 percent, with gains in perfume, makeup, personal care products and skin care.
Separately, in an SEC filing, Avon said that on Wednesday it received a subpoena from the SEC for documents and info related to its contact with financial analysts and other financial executives in 2010 and 2011. The SEC also issued a formal order of investigation related to Avon's bribery probe in China, which began in 2008, is ongoing and has since spread to other countries, as well as the probe into its contact with financial analysts.
"At this point we are unable to predict the duration, scope, developments in, results of, or consequences of the internal investigation and compliance reviews and the SEC's investigation," the company said in the filing.
Avon did not immediately respond to a request for comment.
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