We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Coty (COTY) Down 9.7% Since Earnings Report: Can It Rebound?
Read MoreHide Full Article
About a month has gone by since the last earnings report for Coty Inc. (COTY - Free Report) . Shares have lost about 9.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Coty Misses Q4 Earnings Estimates on Higher Expenses
Coty posted fourth-quarter fiscal 2017 results, wherein earnings lagged the Zacks Consensus Estimate, while revenues beat the same.
The company posted break-even adjusted earnings in the quarter, lagging the Zacks Consensus Estimate of 9 cents. Adjusted earnings also declined from the year-ago earnings of 13 cents due to a decline in adjusted operating income related to higher marketing spending and higher interest expense.
Quarter in Detail
The company generated revenues of $2.24 billion in the fourth quarter beating the Zacks Consensus Estimate of $2.17 billion by 3.1%. Revenues surged 108.4% from the prior-year quarter, driven by the positive contribution from the acquisitions of ghd and Younique. On a constant currency basis, revenues increased 5%.
Excluding acquisition impact, net revenues of the combined company of Legacy-Coty and P&G Beauty Business declined 3% on a constant currency basis. This also includes the benefit of approximately 1% from pre-shipments to customers prior to the termination of transition services for Europe under the Transition Services Agreement (TSA) signed on July 1.
Adjusted gross margin expanded 420 basis points to 62.1% in the fourth quarter driven by the addition of the higher gross margin P&G Beauty and Younique businesses. However, adjusted operating margin contracted 480 basis points to 4.0% in the quarter due to higher marketing investment to support the momentum in the business as well as higher fixed costs.
Fiscal 2017 Results
The company posted adjusted earnings of 63 cents in fiscal 2017, missing the Zacks Consensus Estimate of 75 cents by 16%. Adjusted earnings also declined 54% from the year-ago earnings.
Revenues reported were $7.650 billion in fiscal 2017, beating the Zacks Consensus Estimate of $7.58 billion by 0.9%. Revenues also surged 76% compared to Legacy-Coty net revenues in the prior year, driven by the positive contribution from the acquisitions of ghd and Younique. The acquisition of Brazilian product line Hypermarcas S.A. (February 2016) also provided an impetus to the growth. On a constant currency basis, revenues of the combined company grew 1%. Excluding the positive impact of acquisitions, the combined company organic net revenues declined 5% on a constant currency basis due to flat performance in Professional Beauty, a modest decline in Luxury, and continued underlying challenges in Consumer Beauty.
Segment Details
Luxury: Luxury net revenues grew 61% to $648.0 million on a reported basis. Revenues grew 5% organically, supported by strong performance at Hugo Boss, Gucci, Chloe and philosophy brands. Adjusted operating income for Luxury declined 66% to $10.0 million in the quarter.
Consumer Beauty: Consumer Beauty increased 85% to $1.126 billion on a reported basis and declined 10% organically, reflecting continued pressure on COVERGIRL, Clairol, and Sally Hansen. Adjusted operating income for Consumer Beauty increased 37% to $64.9 million.
Professional: Professional Beauty net revenues of $467.3 million increased from $63.6 million in the prior year and increased 3% organically, driven by growth in Wella and System Professional and moderating declines in OPI brand. Adjusted operating income for Professional declined 14% to $15.2 million compared with Legacy-Coty in the prior-year period.
Other Financial Updates
Coty ended fiscal 2017 with cash and cash equivalents of $535.4 million, total debt of $7.2 billion, and total shareholders’ equity of $9.3 billion.
Net cash provided by operating activities was $757.5 million compared to $501.4 million for Legacy-Coty in the prior year reflecting improved working capital for the combined company, partly offset by an increase in cash acquisition related and restructuring costs. Free cash flow in fiscal 2017 of $325.2 million decreased from $351.3 million in the prior year, reflecting a significant increase in capital expenditures associated with the P&G Beauty Business integration.
The company also paid a quarterly dividend of 12.5 cents per share for a total of $93.4 million in June.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter. While looking back an additional 30 days, we can see even more downside. There has been one move higher compared to two lower in the last 60 days. In the past month, the consensus estimate has shifted lower by 71% due to these changes.
At this time, Coty's stock has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We expect below average returns from the stock in the next few months.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Coty (COTY) Down 9.7% Since Earnings Report: Can It Rebound?
About a month has gone by since the last earnings report for Coty Inc. (COTY - Free Report) . Shares have lost about 9.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Coty Misses Q4 Earnings Estimates on Higher Expenses
Coty posted fourth-quarter fiscal 2017 results, wherein earnings lagged the Zacks Consensus Estimate, while revenues beat the same.
The company posted break-even adjusted earnings in the quarter, lagging the Zacks Consensus Estimate of 9 cents. Adjusted earnings also declined from the year-ago earnings of 13 cents due to a decline in adjusted operating income related to higher marketing spending and higher interest expense.
Quarter in Detail
The company generated revenues of $2.24 billion in the fourth quarter beating the Zacks Consensus Estimate of $2.17 billion by 3.1%. Revenues surged 108.4% from the prior-year quarter, driven by the positive contribution from the acquisitions of ghd and Younique. On a constant currency basis, revenues increased 5%.
Excluding acquisition impact, net revenues of the combined company of Legacy-Coty and P&G Beauty Business declined 3% on a constant currency basis. This also includes the benefit of approximately 1% from pre-shipments to customers prior to the termination of transition services for Europe under the Transition Services Agreement (TSA) signed on July 1.
Adjusted gross margin expanded 420 basis points to 62.1% in the fourth quarter driven by the addition of the higher gross margin P&G Beauty and Younique businesses. However, adjusted operating margin contracted 480 basis points to 4.0% in the quarter due to higher marketing investment to support the momentum in the business as well as higher fixed costs.
Fiscal 2017 Results
The company posted adjusted earnings of 63 cents in fiscal 2017, missing the Zacks Consensus Estimate of 75 cents by 16%. Adjusted earnings also declined 54% from the year-ago earnings.
Revenues reported were $7.650 billion in fiscal 2017, beating the Zacks Consensus Estimate of $7.58 billion by 0.9%. Revenues also surged 76% compared to Legacy-Coty net revenues in the prior year, driven by the positive contribution from the acquisitions of ghd and Younique. The acquisition of Brazilian product line Hypermarcas S.A. (February 2016) also provided an impetus to the growth. On a constant currency basis, revenues of the combined company grew 1%. Excluding the positive impact of acquisitions, the combined company organic net revenues declined 5% on a constant currency basis due to flat performance in Professional Beauty, a modest decline in Luxury, and continued underlying challenges in Consumer Beauty.
Segment Details
Luxury: Luxury net revenues grew 61% to $648.0 million on a reported basis. Revenues grew 5% organically, supported by strong performance at Hugo Boss, Gucci, Chloe and philosophy brands. Adjusted operating income for Luxury declined 66% to $10.0 million in the quarter.
Consumer Beauty: Consumer Beauty increased 85% to $1.126 billion on a reported basis and declined 10% organically, reflecting continued pressure on COVERGIRL, Clairol, and Sally Hansen. Adjusted operating income for Consumer Beauty increased 37% to $64.9 million.
Professional: Professional Beauty net revenues of $467.3 million increased from $63.6 million in the prior year and increased 3% organically, driven by growth in Wella and System Professional and moderating declines in OPI brand. Adjusted operating income for Professional declined 14% to $15.2 million compared with Legacy-Coty in the prior-year period.
Other Financial Updates
Coty ended fiscal 2017 with cash and cash equivalents of $535.4 million, total debt of $7.2 billion, and total shareholders’ equity of $9.3 billion.
Net cash provided by operating activities was $757.5 million compared to $501.4 million for Legacy-Coty in the prior year reflecting improved working capital for the combined company, partly offset by an increase in cash acquisition related and restructuring costs. Free cash flow in fiscal 2017 of $325.2 million decreased from $351.3 million in the prior year, reflecting a significant increase in capital expenditures associated with the P&G Beauty Business integration.
The company also paid a quarterly dividend of 12.5 cents per share for a total of $93.4 million in June.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter. While looking back an additional 30 days, we can see even more downside. There has been one move higher compared to two lower in the last 60 days. In the past month, the consensus estimate has shifted lower by 71% due to these changes.
Coty Inc. Price and Consensus
Coty Inc. Price and Consensus | Coty Inc. Quote
VGM Scores
At this time, Coty's stock has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We expect below average returns from the stock in the next few months.