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What Benefited Coty’s 9-Month Fiscal 2016 Earnings?

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Coty’s fiscal 3Q16 earnings highlights

Coty (COTY) released its fiscal 3Q16 earnings on May 3, 2016. The quarter ended on March 31, 2016. The company’s adjusted diluted EPS (earnings per share) fell 50.0% to $0.09 compared to $0.18 in the prior year’s quarter.

The company’s reported net revenue rose 1.8% to ~$1.0 billion. However, its first-nine-month fiscal 2016 EPS rose 19% to $1.08 compared to $0.91 in the prior year.

After beating earnings expectations for six consecutive quarters, Coty disappointed Wall Street analysts’ expectations in fiscal 3Q16. Consensus estimates had projected adjusted EPS of $0.12.

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Earnings versus peers’

The company’s rise in EPS for nine months resulted from a favorable tax settlement of $0.1 billion in 2016 compared to a $0.03 billion settlement in 2015.

Similarly, Estée Lauder’s (EL) fiscal 3Q16 diluted EPS rose 4% to $0.76. The company’s EPS for the quarter included $0.02 of dilution from acquisitions and $0.03 from unfavorable currency translations.

However, Procter & Gamble’s (PG) core earnings fell 3% to $0.86 per share in fiscal 3Q16, while its reported diluted EPS rose 29% to $0.97. Avon’s (AVP) adjusted EPS also fell to -$0.07 in 1Q16 compared to $0.04 in 1Q15. L’Oréal (LRLCY) reports its earnings results every six months.

Acquisitions marginally boost EPS

Despite economic instability, Coty expects its EPS growth to be substantially higher due to a huge return on one-off tax benefits.

Excluding any synergies from its anticipated merger with the P&G Specialty Beauty Business, Coty expects its acquisition deal for the Beauty & Personal Care business of Hypermarcas, which closed on February 1, 2016, to be marginally EPS accretive in two years and to boost its revenue.

In the next part of the series, we’ll focus on the factors that led to Coty’s revenue miss. Coty makes up 0.8% of the First Trust US IPO Index ETF (FPX).[1. Updated on June 13, 2016]

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