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Why Tax Benefits Helped Coty’s Full-Year Earnings Growth

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Coty’s fiscal 4Q16 earnings beat expectations

Coty (COTY) released its fiscal 4Q16 and full-year earnings on August 16, 2016. The quarter ended on June 30. The company’s adjusted diluted EPS (or earnings per share) increased 8.0% to $0.13 per share in F4Q16 and 21% to $1.37 per share for fiscal 2016. Reported net revenue decreased 1.0% to $4.3 billion for fiscal 2016 and increased 5.5% to $1.1 billion in fiscal 4Q16.

Out of eight consecutive quarters, Coty has exceeded earnings expectations for seven quarters, including F4Q16. Coty disappointed Wall Street analyst expectations in F3Q16.

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Earnings versus peers

The increase in EPS was due to an adjusted tax rate of 1.9% for the fiscal year 2016 compared to 17.7% in the prior year. This reflects a higher tax benefit for the current fiscal year.

In comparison, Procter & Gamble’s (PG) core earnings fell 15% to $0.79 in F4Q16 and fell 2% to $3.67 for fiscal 2016. The decrease was due to increased marketing investments and a higher core effective tax rate. Avon’s (AVP) adjusted EPS also decreased to $0.07 in C2Q16 compared to $0.09 in C2Q15. However, L’Oréal’s (LRLCY) first half of 2016 net earnings rose 3.4% to 3.59 euros per share compared with the first half of 2015. Estée Lauder (EL) has yet to release its 4Q16 and fiscal 2016 results on August 19, 2016.

EPS expectations going forward

Despite economic instability, Coty expects earnings per share growth to be substantially higher because of a huge return on one-off tax benefits.

Coty expects its Brazil acquisition deal of Hypermarcas’s Beauty & Personal Care business, which closed on February 1, to be marginally EPS-accretive in two years and also to boost revenue. This acquisition showed strong revenue and profit momentum in its first full quarter results and should integrate with Coty’s Brazil business to be completed by September 2016.

In the next part of this series, we’ll focus on the factors that led to the revenue growth.

Coty makes 0.8% of the First Trust US IPO Index ETF (FPX).[1. As of August 16, 2016]

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