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Coty’s Top Line Disappoints as It Readies Launchpad for Growth

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Nov. 6 2015, Published 4:26 p.m. ET

Coty reports earnings for the first quarter of fiscal 2016

Fragrances and beauty products company Coty (COTY) reported its 1Q16 results before the market open on November 5, 2015. Coty’s fiscal 2016 ends June 30, 2016, with the first quarter ending on September 30, 2015.

The company reported varying results across its businesses. While growth was strong in its color cosmetics segment, the company’s Fragrances and Skin & Body Care businesses posted double-digit falls in sales.

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Sales trends

Coty reported revenue of $1.1 billion in 1Q16, a fall of 5.9% compared to 1Q15. Forex headwinds negatively impacted the company’s top line by 800 basis points. Like-for-like sales fell by 2%.

Fragrances, Coty’s largest segment, posted a 14.5% annual fall, with sales coming in at $548.1 million. The company attributed the fall to the challenged performance of its largest fragrance brand Calvin Klein, an unsustainable launch schedule last year, and lower innovation in the current quarter.

Earnings trend

Coty’s adjusted earnings per share (or EPS) grew by ~100% year-over-year in 1Q16. The beauty products (XLP) (FXG) (VDC) company’s adjusted EPS rose to $0.59 in 1Q16, beating the Wall Street consensus analyst EPS estimate of $0.30 by a wide margin.

The company’s adjusted EPS came in at $0.28 in 1Q15. Its 1Q16 earnings rose sharply, primarily helped along by a favorable tax settlement of $113.3 million.

Coty’s profitability margins improved as its adjusted operating income rose 4% to $173.4 million in 1Q16. Profits benefited from the company’s initiatives to drive supply chain efficiencies and lower SG&A (selling, general and administrative expenses).

Coty’s competitor Estée Lauder (EL) delivered earnings and sales beats in its first quarter results declared on November 2, 2015. Estée Lauder reported a 9.4% rise in its fragrances business in 1Q16, which ended September 30, 2015. The company’s total sales grew 7.7% in 1Q16.

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Future plans

Coty’s been in the midst of restructuring its business strategy over the past few months. It’s unveiled a slew of changes. These include multiple acquisitions across product categories and geographies, organizational restructuring, and moving its corporate headquarters. Over the course of the series, we’ll analyze how these changes are likely to impact Coty’s future growth (IWF) trajectory.

P&G update

At its 1Q16 earnings release, Coty also provided an update of the status of its merger with 43 of Procter & Gamble’s (PG) beauty brands announced in July. We’ll discuss this in the next article.

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