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Coty (COTY) to Team Up With LanzaTech for its Fragrance Business

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Coty Inc. COTY is focused on enhancing its core prestige fragrance business as part of its strategic priorities. Incidentally, the company signed a letter of intent to partner with LanzaTech — a pioneer in producing next-generation green and sustainable ingredients. This partnership is aimed at introducing sustainable ethanol produced from captured-carbon emissions into Coty’s fragrance offerings.

Notably, Coty’s scientists have worked with LanzaTech and production partners during the last two years to come up with a high-purity sustainable ethanol for its scents. The envisioned partnership will enable Coty to use this carbon-captured ethanol. Management intends to have most of its fragrance portfolio to be made using this ethanol by 2023.

We note that ethanol is major ingredient in fragrance products. Currently, the company’s scents use ethanol, which is derived from several natural raw materials like sugar cane and sugar beet. These ingredients use land, water and fertilizers. Coty highlighted that the newly-developed ethanol with LanzaTech uses near-zero water as well as reduced area of agricultural land. Clearly, the introduction of this carbon-captured ethanol is in sync with Coty’s ‘Beauty That Lasts’ sustainability program.

As part of its core strategic priorities, Coty is focused on achieving robust e-commerce momentum; strengthening presence in China; solidifying foothold in white space opportunities such as prestige cosmetics and skincare; solidifying core prestige fragrance business as well as stabilizing the mass beauty business via innovation and better execution. We believe that the company’s association with LanzaTech is in sync with its core priorities.

What Else is Driving Coty’s Growth?

Coty has made several strategic acquisitions to enhance its brand portfolio. To this end, the company acquired 20% stake in Kim Kardashian West's businessin January 2021. The deal will help Coty and Kim Kardashian West focus on fresh beauty categories along with expanding their worldwide presence beyond the current line of products. Further, Coty and Kylie Jenner unveiled their long-term alliance in January 2020, aimed at further building upon Kylie’s beauty business, which includes Kylie Skin and Kylie Cosmetics.

Additionally, Coty is committed toward optimizing the overall cost structure. The company delivered fixed cost savings of nearly $80 million in the second quarter of fiscal 2021 and is now on track to generate savings of nearly $300 million in fiscal 2021 compared with more than $200 million expected before. The raised savings goal can be accountable to robust delivery in the first half and acceleration of various projects. This, in turn, is likely to lead to adjusted EBITDA of $750 million for fiscal 2021. Certainly, Coty’s robust cost discipline and cash-flow dynamics remain its main drivers.

Notably, shares of this Zacks Rank #3 (Hold) company have surged 110.6% in the past six months compared with the industry’s growth of 26.7%.

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