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Coty (COTY) Stock Down Despite Q3 Earnings Beat & Raised View

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Coty Inc.’s COTY shares dropped 7.4% during the trading session on May 9, 2022, despite posting robust third-quarter fiscal 2022 results. The company is bearing the brunt of lockdowns in China, the war in Ukraine, an inflationary environment and supply pressures worldwide.

The company posted third-quarter fiscal 2022 results, with the top and the bottom line increasing year over year. Sales and earnings surpassed the Zacks Consensus Estimate. The company gained from strong performance across the Prestige and Consumer Beauty segments. Coty saw solid trends in the Prestige fragrance portfolio, with particular gains from Gucci Beauty, Chloe, Burberry and Hugo Boss. Prestige cosmetics almost doubled year over year in the quarter. The Consumer Beauty unit delivered robust performance across color cosmetics, mass fragrances and body care. Coty witnessed solid gross margin expansion despite an inflationary environment. Management is on track to enhance its strategic growth pillars.

Considering Coty’s solid year-to-date performance, management raised its fiscal 2022 earnings view while reiterating revenue guidance.

Coty Price and EPS Surprise

Coty Price and EPS Surprise
Coty Price and EPS Surprise

Coty price-eps-surprise | Coty Quote

Quarter in Detail

Coty posted adjusted earnings of 3 cents per share, which surpassed the Zacks Consensus Estimate of 2 cents. The bottom line improved from 1 cent reported in the year-ago quarter.

Coty’s net revenues came in at $1,186.2 million, up 15% year over year, including an adverse currency impact of 4%. LFL revenues rose 19% on growth in the Prestige and the Consumer Beauty business segments. Management highlighted that revenue growth was driven by the ongoing rebound in several EMEA markets and Travel Retail and continued momentum in the United States. The performance also gained from robust e-commerce business, which registered double digits sales growth in the quarter. The metric surpassed the Zacks Consensus Estimate of $1,160.7 million

Adjusted gross margin came in at 64.6%, expanding 240 basis points (bps) from the prior-year quarter’s levels. The upside was supported by favorable intra-category mix-shift, price and mix management and improved absorption.

Adjusted operating income came in at $113.6 million, rising from $102.2 million in the prior-year quarter. The adjusted EBITDA for the quarter amounted to $182.5 million, in line with the year-ago quarter’s levels, as higher A&CP offset increased sales and gross profit.

The adjusted operating margin for the third quarter came in at 9.6%, while the adjusted EBITDA margin stood at 15.4%.

Segment Results

Prestige: Net revenues in the segment advanced 21% to $726.4 million. The segment’s revenues were up 25% on an LFL basis, driven by strength in every region, including continued recovery in most EMEA markets, Travel Retail and the United States.

Consumer Beauty: Net revenues rose 8% year over year to $459.8 million. The segment’s LFL sales jumped 10%, with solid performance in color cosmetics, mass fragrances and body care. Management highlighted that every region generated LFL growth in the unit.

Region-Wise Results

Net revenues in the Americas increased 17% to $479.9 million. LFL revenues were up 17%, driven by solid growth of Prestige and Consumer Beauty segments.

Sales in EMEA increased 16% year over year to $548.2 million, while the figure rose 23% on an LFL basis. The unit’s performance gained from double-digit growth across the Prestige and Consumer Beauty segment.

Sales in the Asia-Pacific region rose 9% (up 10% at LFL) year on year to $158.1 million. The upside was driven by solid expansion in regional Travel Retail, which was above pre-pandemic levels. That said, sales in China were hampered in March owing to COVID-induced restrictions.

Other Updates

The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $668.6 million, net long-term debt of $4,316.9 million and immediate liquidity of $2,658.5 million.

During the nine months ended Mar 31, 2022,cash provided by operating activities amounted to $759.5 million.

On Apr 27, 2022, the company announced that it is winding down its Russian operations with immediate effect.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Outlook

Considering the projected impact of exiting operations in Russia, including local Travel Retail and the near-term COVID restrictions lockdowns in China on the fourth-quarter results, management anticipates fiscal 2022 LFL sales at the upper end of its guidance of low-to-mid teens percentage growth. The company expects unfavorable currency rates to impact reported sales by 4-5% in the fourth quarter.

For fiscal 2022, adjusted EBITDA is still expected to come in at $900 million. Management highlighted that it is reinvesting gross margin gains and cost savings in its brands to generate value as it battles an inflationary environment.

Owing to solid year-to-date earnings performance, management pushed the fiscal 2022 earnings view upward. Fiscal 2022 adjusted earnings per share (EPS) is expected in the range of 23-27 cents, up from the earlier guidance of 22-26 cents.

Price Performance

COTY’s shares have decreased 27.7% in the past three months compared with the industry’s decline of 20.8%.

3 Hot Staple Bets

Some better-ranked stocks are Inter Parfums, Inc. IPAR, Olaplex Holdings, Inc. OLPX and Sysco Corporation SYY.

Inter Parfums develops, manufactures and distributes prestige perfumes and cosmetics. It currently carries a Zacks Rank #2 (Buy). Inter Parfums has a trailing four-quarter earnings surprise of 46.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for IPAR’s current financial year sales and EPS suggests growth of 12.5% and 10.9%, respectively, from the year-ago period’s figures.

Olaplex, which manufactures and sells hair care products, carries a Zacks Rank #2, at present. OLPX’s earnings per share matched the Zacks Consensus Estimate in the last reported quarter.

The Zacks Consensus Estimate for Olaplex’s current financial year sales and EPS suggests growth of 37.2% and 35%, respectively, from the year-ago period’s reported figures.

Sysco, the marketer and distributor of food and related products, currently carries a Zacks #2. SYY has a trailing four-quarter earnings surprise of 3.7%, on average.

The Zacks Consensus Estimate for Sysco’s current financial year sales and earnings suggests growth of 28.9% and 111.1%, respectively, from the corresponding year-ago period’s reported figures.


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