Coty Inc. reported a 29 percent dive in net income for the second quarter ended Dec. 31 as the firm was hit by higher expenses. Revenues dropped 4 percent to $1.2 billion, a 4 percent decrease.
The company reported gross profit of $742.8 million for the quarter, down from $750.7 million in 2014. On an adjusted basis, net income attributable to Coty fell 17 percent to $135.8 million, and adjusted earnings per share were 38 cents for the quarter ended Dec. 31, and $0.98 for the six-month period.
Coty’s stock was trading up 12.4 percent to $27.67 in mid-day trading.
The company’s latest financials reflect the cost of the deal spree it has undertaken and the organizational restructuring those acquisitions have spurred. In the six months ended Dec. 31, Coty incurred $72.7 million in restructuring costs, mostly from its acquisition integration program. The group also incurred $46.6 million in charges related to acquisition activities for the quarter ended Dec. 31, and $64.9 million in acquisition costs during the six-month period. Of those charges, $1.1 million was related specifically to the acquisition of cosmetics brand Bourjois, which the company added in April.
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Coty is working to rationalize non-strategic product lines and businesses, something it will continue to do after it closes the deal for 41 beauty brands from Procter & Gamble, said Bart Becht, the company’s chairman and interim chief executive officer. That process includes removing lines from certain channels. Selling nail polish line OPI in hardware stores, for example, “is probably not the smartest thing we could do,” Becht said.
The business has been involved in a handful of deals – inking a licensing agreement with Tiffany & Co. and making other acquisitions. Aside from the Bourjois and P&G deals, Coty added digital marketing firm Beamly and closed a $1 billion deal for beauty brands from Brazil-based Hypermarcas on Feb. 1. The Hypermarcas transaction gives Coty infrastructure, including manufacturing, logistics and management capabilities that it didn’t have in the region, Becht said.
The P&G transaction is slated to close in the latter half of 2016, and has received U.S. regulatory approval. The deal still requires approval from European regulators. Coty was originally slated to buy 43 brands, but Dolce & Gabbana fragrances and Christina Aguilera Perfumes did not consent to the transaction. Becht declined to provide further insight into the P&G brands, but said the company would file paperwork with the Securities and Exchange Commission that would give a clear picture of the businesses in mid-April.
Coty’s $1.2 billion in net revenue breaks down to $419.6 million from the Americas, $644.7 million from Europe, the Middle East and Africa and $146.2 million from the Asia Pacific. On an adjusted basis, net income for the quarter was $144.4 million. Different from net income attributable to Coty, this number includes income related to minority interests in joint ventures.
Growth in color cosmetics revenue was offset by revenue declines in fragrance. Color cosmetics net revenues were up, driven by Sally Hansen and Rimmel. In skin and body care, the company reported growth for Adidas and Philosophy, but the category was pulled down by lower net revenues from Playboy.
Color cosmetics had net revenues of $374.8 million, a 10 percent increase from $340.5 million in the year-ago period. Coty’s fragrance net revenues were $627 million, down 9 percent from $691.7 million year-over-year. Skin and body care was also down, bringing in $208.7 million in net revenues from $227.4 million in the year ago period, an 8 percent decline.
Net income for the six months ended Dec. 31 was $214.7 million, a 58 percent increase year-over-year. For the six months ended Dec. 31, net revenues were down 5 percent to $2.3 billion.
Coty said its board of directors has approved a $500 million share repurchase program. Gross margin increased to 61.5 percent from 59.5 percent a year ago, driven by supply chain efficiencies and fewer product discounts.
“Coty revenue trends remained muted and we expect to see this Q2 trend continue for the remainder of the fiscal year as we gradually rationalize non-strategic product lines and businesses,” Becht said. “In contrast, power brands experienced solid growth in the second quarter. At the same time, we continued to show strong momentum in driving operating profit, operating margin growth and cash flow generation, showing that we can continue to build a healthier and better business despite a muted revenue growth performance.”