Coty Inc.’s color cosmetics sales increased 1 percent like-for-like for the first quarter, reflecting a broad beauty trend towards gains in makeup sales.
The company provided more detail on its acquisition of 41 beauty brands from Procter & Gamble on an earnings call Tuesday. After the deal closes, Coty should have about $9.2 billion in net revenues, the company said, which would make it the third largest business in beauty.
Coty expects to have $780 million in synergies as a result of the deal, which will be realized over a four-year period. The business expects the beauty portfolio to add 600 basis points to its stand-alone operating profit margins over a four-year period, and increase pro forma earnings per share between $0.49 to $0.54 by fiscal year 2020. The deal is expected to close in October. Coty also reported higher than anticipated costs related to the deal. The company’s shares closed down 8.7 percent to $28.35.
Next up for the serial acquirer is integrating those brands, Becht said. “We’re not really actively looking to do new acquisitions,” he said. “We will be back on that, but we’re very much focused on integrating P&G right now.”
When the company is back on the acquisition train, it’ll likely be looking for businesses that fit within the three segments it has organized itself into: Coty Luxury, Coty Professional or Coty Consumer Beauty. “[Potential targets] would have to fit into luxury, consumer beauty or professional, at least initially. That doesn’t mean that we will not break out of that at some point in time. There is substantial opportunity to expand the portfolio even within those,” Becht said.
For the quarter ended March 31, the company posted a 19 percent decrease in adjusted operating income, to $81.7 million, from $100.9 million in the prior-year period. Diluted adjusted earnings per share were 9 cents, down from $0.18 year-over-year.
Coty’s net income dropped to negative $26.8 million, from $75.5 million in the prior-year period. Adjusted net income was $31.5 million, down from $63.6 million year-over-year.
Net revenues declined 1 percent to $950.7 million on a like-for-like basis for the quarter, and increased 2 percent on a reported basis. Coty said moderate like-for-like growth in color cosmetics was offset by modest declines in fragrance and pressure in skin and body care. Color cosmetics saw a 1 percent like-for-like increase to $374.3 million from $336.6 million, driven by Rimmel. Sally Hansen revenues were lower, which Coty attributed to the decline in the U.S. retail nail market. Fragrances were down 1 percent to $415.4 million, with growth from Marc Jacobs. Skin and body care declined 5 percent to $146.7 million, like-for-like, as strength at Adidas was offset by declines from Philosophy and Playboy. The acquisition of Hypermarcas, which closed in February, added $14.3 million in revenues, which were negatively affected by a change in commercial terms to confirm with Coty’s standards, the company said.
For the first nine months of Coty’s fiscal year, Coty reported net income of $187.9 million, down from $211.5 million in the prior-year period. The company’s adjusted net income was $387 million, up from $329.8 million in the prior-year period because of a favorable $113.3 million tax settlement. Coty posted $469.7 million in adjusted operating income during the period. Coty closed the acquisition of Hypermarcas in February, which added $14.3 million in revenues for the quarter. That number was brought down by a change in commercial terms to confirm with Coty’s standards, the company said.