Avon Products Inc reported weaker-than-expected fourth-quarter results as sales slid in every market except Latin America and the company saw a sharp drop in the number of representatives essential to selling its cosmetics directly to consumers.

But shares rose as much as 5.4 percent as executives soothed investor fears by saying the company sees immediate potential savings through layoffs, while Avon's outgoing chief, Andrea Jung, pledged to stay out of her successor's way even though she will still be chairman.

Avon's shares have come under intense pressure in the last year because of weak performances in key markets including Brazil and Russia. The stock has also been hurt by fallout from an expensive internal bribery investigation that began in China in 2008 as well as a probe by federal prosecutors.

The cosmetics direct seller reported a net loss of $400,000, or nil per share, on sales of $3 billion in the quarter ended December 31, compared with net income of $229.5 million or 53 cents per share, on sales of $3.14 billion a year earlier.

Excluding some items, Avon made 39 cents per share from continuing operations, well below the 51 cents Wall Street analysts were expecting.

The company's fourth-quarter results point to declining business in Russia and Brazil, where Avon has banked on growth to mitigate a long-term slide in its home market of North America.

Revenue fell 4 percent worldwide to $3 billion, missing Wall Street estimates.

The fourth-quarter revenue drop included a 1 percent decrease in Brazil, where Avon has been plagued by poor implementation of a new computer system which frustrated sales representatives. Revenue fell 10 percent in Russia, where the company faced aggressive pricing from competitors and sales reps dropped out.

Jung, who in December agreed to step down from the CEO post, said the computer problems in Brazil have stabilized and that the decline in representatives in Russia eased at the very end of 2011.

The only bright spot in Avon's revenue was Mexico, where sales were up 12 percent in constant dollars.


Jung sought to reassure analysts on a conference call that her decision to stay on as executive chairman will not necessarily inhibit the next CEO from taking the necessary steps to fix the company.

Just to be very clear, the new CEO will have absolute autonomy to define his or her strategic and operational priorities, said Jung, who has been CEO since 1999.

The company said on Tuesday it would wait for the announcement of her replacement before updating its business review, which was initially to be presented in early 2012. Avon has given no specific timetable for naming a new CEO, though it is expected to be this year.

Jung said that the focus in 2012 would be sales improvements and containing costs, rather than improvement in its margins.

Avon, which relies on its legion of 6 million sales representatives, said the number of active representatives fell by 3 percent. A Morgan Stanley analyst on the call said that was the worst drop in more than a decade.

Problems in Russia and Brazil were the biggest factor in the drop-off in representatives.

Avon plans to maintain its annual dividend of 92 cents in 2012. Avon's former CFO in October said the company had difficulty funding its dividend with free cash flow.

But Avon's new finance chief, Kimberly Ross, said even without profit growth, we would generate sufficient cash to pay the dividend.

In a sign that Avon is struggling with acquisitions it made to win new customers, the company took a $263 million impairment charge for Silpada, which it bought in 2010 for $650 million, blaming rising silver costs for hits to sales.

On the legal front, Jung said little about a federal probe related to Avon's China business. Federal prosecutors are investigating a draft internal report from 2005 by Avon that flagged concern about the company's compliance with U.S. anti-bribery laws, two people familiar with the matter said on Monday.

Jung said on Tuesday that Avon was cooperating with the government but that she was unable to predict the duration, or consequences of the probe.

In 2006, Avon won the first-ever license given by China to a Western company to sell products door-to-door, which was viewed as a coup for Jung.

Prosecutors have presented evidence to a grand jury, The Wall Street Journal reported on Monday.

Avon shares were up 2.4 percent at $17.95 on Tuesday morning, off an earlier high at $18.48.

(Reporting By Phil Wahba in New York; Editing by Derek Caney and Matthew Lewis)