Avon under SEC investigation; shares drop (Reuters)

(Reuters) ? Regulators subpoenaed Avon Products Inc over its contact with analysts, and the company is under a formal investigation over whether it failed to comply with bribery laws in China and elsewhere.

At the same time, the world's largest direct seller of cosmetics also said it was reassessing its long-term strategy after reporting lower-than-expected quarterly sales.

Shares of Avon, already under Wall Street's scrutiny after a string of restructurings and management changes, plunged 17.7 percent to $18.93 in morning trading.

Avon said on Thursday that it got the subpoena from the U.S. Securities and Exchange Commission on Wednesday. The SEC is investigating the company's contact during 2010 and 2011 with certain analysts and other representatives of the financial community, Avon said in its quarterly filing.

The SEC issued a formal order of investigation of that and the Foreign Corrupt Practices Act matter that Avon itself has been investigating since June 2008. The company has been cooperating with the SEC and the U.S. Justice Department on that matter since 2008.

"One inquiry is bad," said Stifel Nicolaus analyst Mark Astrachan, who downgraded Avon shares to a "hold" rating. "Two is a major headache, and we believe the formal order relating to the FCPA investigation indicates a significant step-up in activity, with a resolution unlikely to come any time soon."

Under Andrea Jung -- chief executive officer since 1999 and chairman since 2001 -- Avon has turned in poor performances in Brazil and Russia, poured tens of millions of dollars into its international bribery investigation and struggled to stem declines in a sluggish U.S. market.

Avon, which is celebrating its 125th anniversary this year, changed its corporate structure and shook up management in February in an attempt to fix problems that had led it to miss earnings expectations. It already had overhauled operations and cut thousands of jobs under a restructuring laid out in November 2005 and updated in February 2009.

"The CEO is responsible for the overall outcome of a company, and she has to be under pressure with these results," said Bernstein analyst Ali Dibadj. "It would be unfair to shareholders if there weren't pressure on management at this point."

On Thursday, Avon blamed a decline in sales in Brazil on a difficult implementation of a new computer system and said a tough economic environment in several regions had hurt revenue growth.

The company no longer expects revenue to grow by a mid-single-digit percentage rate this year.

Avon's third-quarter profit fell to $164.2 million, or 38 cents per share, from $166.7 million, or 38 cents a share, a year earlier. Revenue rose 5.7 percent to $2.76 billion.

The results missed Wall Street estimates of earnings of 46 cents per share and revenue of $2.83 billion, according to Thomson Reuters I/B/E/S.

Avon also sold 5 percent fewer products in the quarter.

In North America, sales continued to slide, falling 8 percent in constant dollars as more sales representatives dropped out, while operating profit fell 85 percent.

Blaming rising product costs, Avon said gross margin fell 0.4 percentage points to 63.9 percent.

The company no longer expects operating margins to improve between 0.5 percentage point and 0.7 percentage point this year.

(Reporting by Jessica Wohl in Chicago; Additional reporting by Brad Dorfman in Chicago and Phil Wahba in New York, editing by Dave Zimmerman and Lisa Von Ahn)

Source: http://us.rd.yahoo.com/dailynews/rss/stocks/*http%3A//news.yahoo.com/s/nm/20111027/bs_nm/us_avon

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