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Coty Disappoints Investors with Mixed Q3 Results

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May. 9 2019, Updated 2:44 p.m. ET

Mixed third-quarter results

Coty (COTY) stock fell 5.5% on May 8 as the company reported mixed results for the third quarter of fiscal 2019, which ended on March 31. Coty’s net revenue fell 10.4% on a YoY (year-over-year) basis to $1.99 billion in the quarter mainly due to continued weakness in its Consumer Beauty segment, the effects of a change in its revenue recognition accounting, and moderate supply chain headwinds. The company’s top line missed analysts’ expectation of $2.06 billion.

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Coty’s adjusted EPS of $0.13 were flat YoY but came in ahead of analysts’ estimate of $0.12. Despite a significant drop in its revenue, the company was able to maintain stable earnings YoY (its EPS were $0.13 in the third quarter of fiscal 2018) due to effective fixed-cost management, lower stock compensation expenses, lower advertising and consumer promotion costs due to a reduction in nonworking media, and transactional foreign exchange gains.

Coty stock has risen 76.5% on a YTD (year-to-date) basis as of May 8, mainly due to the spike in its stock price in February due to better-than-expected fiscal 2019 second-quarter earnings results and the announcement by JAB Holdings that it was increasing its stake in Coty.

Outlook intact

Coty reaffirmed that it expects positive free cash flow in fiscal 2019. The company continues to forecast a moderate decline in its adjusted operating income on a constant currency basis.

According to Coty, it has addressed its supply chain issues and expects a very limited impact from its supply chain disruption in the remainder of fiscal 2019. Coty has been facing continued supply chain issues at its US and Europe distribution facilities since its acquisition of 40 beauty brands from Procter & Gamble (PG) in 2016.

Coty’s revenue fell 8.0% to $6.5 billion in the first nine months of fiscal 2019. Supply chain disruptions dragged the company’s revenue down by over $150 million in the same period.

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