Fiscal 2018 performance

Coty (COTY) reported adjusted EPS of $0.69 in fiscal 2018, which ended on June 30. The reported EPS was better than the analyst consensus estimate of 1.5% and a 9.5% increase compared to fiscal 2017. On a reported basis, EPS was -$0.23, which was much better than EPS of -$0.66 in fiscal 2017. The improvement in operating income led to a good bottom-line performance in fiscal 2018.

The company has beaten the estimates in all of the trailing four quarters of 2018. On a year-over-year basis, adjusted EPS was down 56.5% in the first quarter and 13.3% in the third quarter. For the second quarter, adjusted EPS grew 6.7%. For the fourth quarter, adjusted EPS of $0.14 was better than the break-even earnings reported in the same quarter of fiscal 2017.

How Did Coty’s Bottom Line Look in Fiscal 2018?

Margin numbers

On a year-over-year basis, the gross margin was up 120 basis points to 61.6%. However, the adjusted gross margin contracted ten basis points to 62.3%, mainly driven by the consumer beauty division. SG&A expenses rose 23.4% to $5.01 billion driven by acquisition expenses. The SG&A expense rate expanded by 20 basis points to 53.3%. For fiscal 2018, operating income was $161.2 million compared with a loss from operations of $437.8 million. A decline in restructuring and acquisition costs led to improvement in operating income.

The company has an extensive cost-cutting plan in place under which it aims to achieve $750 million in savings by fiscal 2020. For fiscal 2018, the company achieved 50% of the total targeted $750 million savings. For fiscal 2019, it expects to achieve $375 million in savings. It is also targeting a working capital benefit of $500 million by fiscal 2020.

Fiscal 2019

For fiscal 2019, management expects organic revenue to be either unchanged or grow marginally. However, Coty expects to deliver growth in the mid-teens for adjusted operating income growth in fiscal 2019. The adjusted operating margin is expected to expand 100 basis points. For fiscal 2019, EPS is expected to be in the range of $0.74 to $0.78.

However, management has cautioned that the fiscal 2019 first quarter will bear the majority of the brunt stemming from supply chain issues. Also, the impact of streamlining efforts related to brands will be higher in the first quarter. As a result, the adjusted operating income is likely to decline in the low teens.

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