Avon to pay US$135M to settle long-standing US government probe into whether cosmetics company paid bribes in China, other countries to gain favors

Nevin Barich

NEW YORK , May 1, 2014 (Associated Press) – Avon to pay $135 million in preliminary US settlement over bribery charges; 1Q loss deepens

Avon Products Inc. will pay $135 million to settle a long-standing U.S. government probe into whether the cosmetics company paid bribes in China and other countries to gain favors.

Avon, the world's largest direct seller of cosmetics, said it would fork over $68 million to the Justice Department and $67 million to resolve the dispute with the Securities and Exchange Commission. The preliminary resolution still needs SEC authorization and court approval, according to documents filed with the regulatory agency Thursday.

As part of the pact, the Justice Department would defer criminal prosecution in connection with the alleged violations of the Foreign Corrupt Practices Act for three years. The charges would be dismissed then if Avon is compliant with the agreement. The company agreed to a compliance monitor for 18 months and will monitor itself for another 18 months after.

But an Avon China subsidiary would plead guilty to FCPA violations.

The Justice Department could not be reached immediately. The SEC declined to comment.

The bribery probe, which the company began in 2008, has cast a black eye on Avon. It has struggled with steady share declines and several executives have lost their jobs. Andrea Jung, who was CEO of the beauty products company from 1999 through April 2012 and served as chairman through the end of that year, came under fire for failing to stem Avon's sales declines and left amid the overseas bribery investigation.

She was replaced by Sheri McCoy, who took the top spot in April 2012. Under her, Avon is cutting costs, leaving unprofitable markets and streamlining operations.

Avon's latest financial report shows the company's struggles continue. The New York-based company said Thursday that its first-quarter loss widened from a year ago, stung by a volatile currency situation in Venezuela. It also struggled with weak sales across all regions. Profit and revenue fell short of Wall Street expectations.

Avon shares fell 12 percent, or $1.87, to $13.41 in morning trading Thursday.

For the three months that ended on March 31, Avon lost $168.3 million, or 38 cents per share. That compares with a loss of $13.7 million, or 3 cents per share, a year earlier.

Taking out a charge tied to Venezuela's new foreign exchange system and other one-time items, earnings from continuing operations were 12 cents per share. Analysts predicted earnings of 21 cents per share, according to a FactSet poll.

Revenue fell 11 percent to $2.18 billion. Wall Street was calling for $2.2 billion. Beauty sales dropped 12 percent in the quarter, while fashion and home sales were down 9 percent.

The company reported declining revenue across all regions in the first quarter, led by a 22 percent revenue dip in North America. Revenue fell 17 percent in the Asia Pacific region and dropped 11 percent for Europe, the Middle East and Africa. Latin American revenue slipped 7 percent.

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