Coty Slides Amid Challenges Integrating P&G's Beauty BrandsBy
Breakeven earnings per share miss 9-cent average estimate
Consumer division recovery ‘is key priority for us,’ CEO says
Coty Inc. tumbled the most since going public four years ago after its quarterly financial report signaled the integration of dozens of beauty brands it bought from Procter & Gamble Co. is still proving to be a challenge.
Excluding some items, earnings per share broke even in the fourth quarter that ended June 30, the company said Tuesday. That missed analysts’ average 9-cent projection.
The results reflect the hurdles Coty faces to blend more than 40 brands it acquired from P&G for $12.5 billion into its business. While the deal, which closed last year, made Coty the world’s third-largest cosmetics seller, that has come amid weakness in color cosmetics like eye shadow and lipstick. Coty’s luxury and professional units posted gains in organic sales, though its consumer business, which accounts for almost half of revenue, saw a 10 percent drop.
“Our Consumer Beauty division remains under pressure and its recovery is a key priority for us,” Chief Executive Officer Camillo Pane said in a statement.
Two of New York-based Coty’s other recent acquisitions -- hairstyling-appliance company GHD and online cosmetics retailer Younique -- fared better for the company, helping prop sales up to $2.24 billion, topping analysts’ average $2.16 billion estimate. But excluding the gains from those brands and currency fluctuations, Coty said sales were down 3 percent in the period.
Deborah Aitken, an analyst with Bloomberg Intelligence, said Coty has lost ground in the U.S. and Europe and investors aren’t sure how it will cut its fixed costs or overcome greater competition. The company needs new products that grab shoppers’ attention and then to “fight to get their products back on the shelf,” she said.
“It’s not a quick fix. It can take two to four quarters,” she said.
In a call with investors, the company maintained its forecast that it will save on costs as it works new brands into the mix, but stressed that the effects won’t be felt until the second half of fiscal 2018.
Shares of Coty fell as much as 18 percent to $16.08 in New York trading, the biggest intraday decline since its initial public offering in June 2013. The company’s stock had gained 6.8 percent this year through Monday’s close.
Moving forward, Coty said it’s shifting more resources to fuel the brands with the best growth potential, while stabilizing its other lines, and working to boost its reach geographically.
The company is also looking to harness growth through its other recent acquisitions, including the global license rights for Burberry Group Plc fragrances, cosmetics and skincare, and the beauty business of Brazil’s Hypermarcas SA.
— With assistance by Janet Freund