Can Coty Beat Analysts' Estimates Yet Again in Fiscal 3Q16?
Fiscal 2Q16 gross margin highlight
Coty (COTY) reported a slight improvement in its adjusted gross margin in fiscal 2Q16. Its adjusted gross margin rose 130 basis point to 61.5%, driven by supply chain efficiencies and a lower level of promotional and discounted pricing activity.
Adjusted operating margin versus peers
Coty’s adjusted operating income rose 7.6% to $0.2 billion in fiscal 2Q16. However, on a constant-currency basis, its adjusted operating income rose 14%. Its reported operating margin fell to 12.6%, but its adjusted operating margin rose 180 basis points to 17.7% from 15.9%. This included a rise of 330 basis points in color cosmetics, a rise of 420 basis points in skin and body care, and a rise of 20 basis points in fragrances.
Estée Lauder’s (EL) fiscal 2Q16 operating income fell 0.5% to $0.6 billion. Due to lower operating results, its operating margin fell to 20.1% in fiscal 2Q16 compared to 20.8% in fiscal 2Q15. However, EL’s constant currency operating margin rose 60 basis points, primarily due to its expense leverage.
Avon’s (AVP) operating margin fell 480 basis points to 3.8% in 4Q15. This was primarily due to Brazil’s VAT (value added tax) credits and IPI (Imposto Sobre Produtos Industrializados) tax increase.
Shiseido’s (SSDOY) operating income rose 77.4% in 2015. Procter & Gamble’s (PG) adjusted operating margin rose to 22.8% in fiscal 2Q16 compared to 19.4% in fiscal 2Q15.
Through its global efficiency program, Coty recognized cumulative savings of approximately $170 million in fiscal 2Q16.
Coty’s recently acquired Bourjois business has been integrated within Coty’s local subsidiaries. Bourjois’s and Coty’s processes and information technology are now fully aligned. This is not only a good growth opportunity for the brand, but it will also be margin-accretive to Coty’s color business in fiscal 2017.
In the coming parts of the series, we’ll focus on Coty’s stock performance and valuation compared to its peers.
Coty makes up part of the holdings of the WisdomTree SmallCap Dividend ETF (DES).
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