Coty Inc. reported a deep dive in profit in the first quarter due to the integration of its recently closed acquisition of the Procter & Gamble specialty beauty business.
Coty posted a 100 percent decline in net income and a 67 percent dip in adjusted net income, to $78.3 million. Net revenues were down 3 percent, to almost $1.1 billion.
The company reported its quarter without including the P&G beauty brands, which it closed the deal for on Oct. 1. Adjusted earnings per share were 23 cents.
“The last several months have been truly transformational for Coty,” said Coty chairman Bart Becht. “On October 1, we closed the P&G specialty beauty business merger, with a $1 billion lower cash payment than anticipated at the announcement of the transactions. Our new [chief executive officer] Camillo Pane, the executive team and the divisional, regional and country management teams are now almost fully in place and are working on exiting the transitional service agreements while increasingly focusing on rebuilding business momentum.
“As expected, the extensive work over the last 15 months on closing the transaction and merging the two businesses has come at a cost,” Becht continued. “As discussed prior to the closing, the resources which normally work on the business have also been working on closing the transaction, and setting up and preparing for the future of the combined company. The resulting distraction as well as the recent change in management teams in our headquarters, regions and countries, have contributed to a decline in Coty stand-alone revenues and profits in [the first quarter]. Reported and constant currency revenues decline moderately, and adjusted operating income declined by a mid-teens percentage compared to the same period last year. While we are anticipating similar revenue trends in [the second quarter], we are committed not only to real improvement in the trend in the second half, excluding divestitures, but also to achieving further improvement for the combined company in the following fiscal years.
“We continue to target the total four-year synergies and working capital benefits of $750 million and $500 million respectively, with no change to the operating costs to realize both,” Becht said. “We also remain committed to our previously communicated adjusted EPS target of at least $1.53 for fiscal 2020 despite the profit impact of the current decline in revenues.”