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Coty Inc. (COTY - Free Report) posted decent fourth-quarter fiscal 2023 results, with the top and the bottom line increasing year over year. Net revenues beat the Zacks Consensus Estimate and earnings missed the same. The company saw sales growth, driven by Prestige & Consumer Beauty business gains.
Quarter in Detail
Coty reported adjusted earnings per share (EPS) of 1 cent, missing the Zacks Consensus Estimate of 2 cents a share. The bottom line improved from a loss of 1 cent per share reported in the year-ago quarter on profit growth.
Coty’s net revenues came in at $1,351.6 million, up 16% year over year, including an adverse currency impact of 1%. The metric surpassed the Zacks Consensus Estimate of $1,321 million. LFL revenues rose 17% on growth in the Prestige and Consumer Beauty business segment. We had expected LFL revenues to increase 10%.
Adjusted gross margin came in at 62.8%, expanding from 62.1% reported in the year-ago quarter. The upside can mainly be attributed to pricing execution, mix management and supply chain productivity. These were somewhat offset by COGS inflation and unfavorable currency translations.
Adjusted operating income came in at $105.1 million, jumping 61% from $65.1 million in the prior-year quarter on improved gross profit and lower depreciation expense. The adjusted EBITDA in the quarter amounted to $165.4 million, up 25%. The adjusted operating margin was 7.8%, reflecting 220 basis points (bps) margin expansion. The adjusted EBITDA margin stood at 12.2%, up 90 bps.
We had expected year-over-year improvements of 80 basis points and 130 basis points in the adjusted operating margin and adjusted EBITDA margin, respectively, for the quarter under review.
Segment Results
Prestige: Net revenues in the segment went up 21% to $799.6 million. The segment’s revenues were up 21% on an LFL basis, on solid double-digit growth in almost every market, with significant momentum in Asia Pacific, Travel Retail and Europe. We had expected Prestige revenue to increase 12.8% to $747.3 million.
Consumer Beauty: Net revenues rose 9% year over year to $552 million. The segment’s LFL sales jumped 10%, with robust performance across all categories.
Region-Wise Results
Net revenues in the Americas increased 11% to $567.9 million. LFL revenues were up 13%, driven by growth in the Prestige and Consumer Beauty segments.
Sales in EMEA grew 15% year over year to $594.2 million, while the figure increased 13% on an LFL basis. The unit’s performance gained from impressive growth across the Prestige and Consumer Beauty segment, with solid momentum in regional Travel Retail, among others.
Sales in the Asia-Pacific region grew 34% (up 40% at LFL) year over year to $189.5 million. The company witnessed solid LFL growth in both Prestige and Consumer Beauty.
Image Source: Zacks Investment Research
Other Updates
The company ended the quarter with cash and cash equivalents of $246.9 million and net long-term debt, net of $4,178.2 million.
For the year ended Jun 30, 2023, cash provided by operating activities amounted to $625.7 million.
In a separate press release, Coty highlighted that it has entered into an expanded long-term license agreement to bring Marc Jacobs Beauty into its portfolio. Coty’s license with Marc Jacobs now extends for more than 15 years.
Outlook
With the ongoing premiumization trends, management continues to witness strength in the beauty market. The company has been gaining on such favorable trends, with momentum in the core categories, an impressive innovation pipeline and early wins across important white spaces.
Courtesy of these factors, management expects the core business to grow at the top of its medium-term target range of 6-8% LFL for fiscal 2024. Revenues in fiscal 2024 are likely to include a neutral to 2% benefit from currency rates along with a 1-2% scope downside from the divestiture of the Lacoste license.
For fiscal 2024, Coty expects adjusted EBITDA margin expansion of 10-30bps, with the same performance during the first and second half. The company expects fiscal 2024 adjusted EBITDA in the range of $1,065-$1,075 million. The company anticipates modest fiscal 2024 gross margin expansion on a year-over-year basis, with some negative phasing impacts during the first half of the year, followed by improvements in the back half of fiscal 2024.
Management envisions fiscal 2024 adjusted earnings per share (EPS), excluding equity swap, in the band of 44 to 47 cents, reflecting growth of 16-25% year over year.
The Zacks Rank #3 (Hold) company’s shares have increased 28.2% year-to-date against the industry’s 23.4% decline.
Some Better-Ranked Staple Bets
Here, we have highlighted three better-ranked stocks, namely Post Holdings (POST - Free Report) , Utz Brands Inc. (UTZ - Free Report) and The J. M. Smucker Company (SJM - Free Report) .
Post Holdings, a consumer-packaged goods holding company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 59.6% on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Post Holdings’ current fiscal year sales and earnings suggests growth of 13.5% and 184.5%, respectively, from the corresponding year-ago reported figures.
Utz Brands manufactures a diverse portfolio of salty snacks and has a Zacks Rank #2 (Buy). UTZ’s expected EPS growth rate for three to five years is 10.4%.
The Zacks Consensus Estimate for Utz Brands’ current fiscal year sales suggests growth of 3.7% from the year-ago reported numbers. UTZ has a trailing four-quarter earnings surprise of 12.3% on average.
The J. M. Smucker, which manufactures and markets branded food and beverage products, currently carries a Zacks Rank of 2. SJM has a trailing four-quarter earnings surprise of 14%, on average.
The Zacks Consensus Estimate for The J. M. Smucker’s current financial-year earnings suggests growth of 6.7% from the year-ago reported figure.
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COTY's Q4 Earnings Underperform Estimates, Sales Increase
Coty Inc. (COTY - Free Report) posted decent fourth-quarter fiscal 2023 results, with the top and the bottom line increasing year over year. Net revenues beat the Zacks Consensus Estimate and earnings missed the same. The company saw sales growth, driven by Prestige & Consumer Beauty business gains.
Quarter in Detail
Coty reported adjusted earnings per share (EPS) of 1 cent, missing the Zacks Consensus Estimate of 2 cents a share. The bottom line improved from a loss of 1 cent per share reported in the year-ago quarter on profit growth.
Coty’s net revenues came in at $1,351.6 million, up 16% year over year, including an adverse currency impact of 1%. The metric surpassed the Zacks Consensus Estimate of $1,321 million. LFL revenues rose 17% on growth in the Prestige and Consumer Beauty business segment. We had expected LFL revenues to increase 10%.
Adjusted gross margin came in at 62.8%, expanding from 62.1% reported in the year-ago quarter. The upside can mainly be attributed to pricing execution, mix management and supply chain productivity. These were somewhat offset by COGS inflation and unfavorable currency translations.
Coty Price, Consensus and EPS Surprise
Coty price-consensus-eps-surprise-chart | Coty Quote
Adjusted operating income came in at $105.1 million, jumping 61% from $65.1 million in the prior-year quarter on improved gross profit and lower depreciation expense. The adjusted EBITDA in the quarter amounted to $165.4 million, up 25%. The adjusted operating margin was 7.8%, reflecting 220 basis points (bps) margin expansion. The adjusted EBITDA margin stood at 12.2%, up 90 bps.
We had expected year-over-year improvements of 80 basis points and 130 basis points in the adjusted operating margin and adjusted EBITDA margin, respectively, for the quarter under review.
Segment Results
Prestige: Net revenues in the segment went up 21% to $799.6 million. The segment’s revenues were up 21% on an LFL basis, on solid double-digit growth in almost every market, with significant momentum in Asia Pacific, Travel Retail and Europe. We had expected Prestige revenue to increase 12.8% to $747.3 million.
Consumer Beauty: Net revenues rose 9% year over year to $552 million. The segment’s LFL sales jumped 10%, with robust performance across all categories.
Region-Wise Results
Net revenues in the Americas increased 11% to $567.9 million. LFL revenues were up 13%, driven by growth in the Prestige and Consumer Beauty segments.
Sales in EMEA grew 15% year over year to $594.2 million, while the figure increased 13% on an LFL basis. The unit’s performance gained from impressive growth across the Prestige and Consumer Beauty segment, with solid momentum in regional Travel Retail, among others.
Sales in the Asia-Pacific region grew 34% (up 40% at LFL) year over year to $189.5 million. The company witnessed solid LFL growth in both Prestige and Consumer Beauty.
Image Source: Zacks Investment Research
Other Updates
The company ended the quarter with cash and cash equivalents of $246.9 million and net long-term debt, net of $4,178.2 million.
For the year ended Jun 30, 2023, cash provided by operating activities amounted to $625.7 million.
In a separate press release, Coty highlighted that it has entered into an expanded long-term license agreement to bring Marc Jacobs Beauty into its portfolio. Coty’s license with Marc Jacobs now extends for more than 15 years.
Outlook
With the ongoing premiumization trends, management continues to witness strength in the beauty market. The company has been gaining on such favorable trends, with momentum in the core categories, an impressive innovation pipeline and early wins across important white spaces.
Courtesy of these factors, management expects the core business to grow at the top of its medium-term target range of 6-8% LFL for fiscal 2024. Revenues in fiscal 2024 are likely to include a neutral to 2% benefit from currency rates along with a 1-2% scope downside from the divestiture of the Lacoste license.
For fiscal 2024, Coty expects adjusted EBITDA margin expansion of 10-30bps, with the same performance during the first and second half. The company expects fiscal 2024 adjusted EBITDA in the range of $1,065-$1,075 million. The company anticipates modest fiscal 2024 gross margin expansion on a year-over-year basis, with some negative phasing impacts during the first half of the year, followed by improvements in the back half of fiscal 2024.
Management envisions fiscal 2024 adjusted earnings per share (EPS), excluding equity swap, in the band of 44 to 47 cents, reflecting growth of 16-25% year over year.
The Zacks Rank #3 (Hold) company’s shares have increased 28.2% year-to-date against the industry’s 23.4% decline.
Some Better-Ranked Staple Bets
Here, we have highlighted three better-ranked stocks, namely Post Holdings (POST - Free Report) , Utz Brands Inc. (UTZ - Free Report) and The J. M. Smucker Company (SJM - Free Report) .
Post Holdings, a consumer-packaged goods holding company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 59.6% on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Post Holdings’ current fiscal year sales and earnings suggests growth of 13.5% and 184.5%, respectively, from the corresponding year-ago reported figures.
Utz Brands manufactures a diverse portfolio of salty snacks and has a Zacks Rank #2 (Buy). UTZ’s expected EPS growth rate for three to five years is 10.4%.
The Zacks Consensus Estimate for Utz Brands’ current fiscal year sales suggests growth of 3.7% from the year-ago reported numbers. UTZ has a trailing four-quarter earnings surprise of 12.3% on average.
The J. M. Smucker, which manufactures and markets branded food and beverage products, currently carries a Zacks Rank of 2. SJM has a trailing four-quarter earnings surprise of 14%, on average.
The Zacks Consensus Estimate for The J. M. Smucker’s current financial-year earnings suggests growth of 6.7% from the year-ago reported figure.