Is Coty Inc. headed for a recovery? An In-Depth Look at the Numbers

Coty is one of the world’s largest beauty companies with over $9 billion in revenue, an iconic portfolio of brands and a purpose of celebrating and liberating the diversity of consumers’ beauty.

On Nov 7th, Coty Inc. announced financial results for the first quarter of the fiscal year 2019, ended September 30, 2018. The company reported disappointing results due to the supply chain disruptions it had experienced over the last quarter and the resulting poor Q1 financial performance. While the company had anticipated some level of disruption in the first quarter from warehousing and planning consolidation, the increased scope of the disruptions resulted in much weaker results than previously expected.

Notwithstanding these temporary setbacks, the fundamentals of the company continues to remain robust and the management is working hard to remedy the supply chain issues and expect to temper the headwinds in the second quarter, and have them be substantially resolved in the third quarter, although Coty do not expect to fully recover the Q1 financial impact in the balance of fiscal 2019. As a result of these disruptions, the company has decided to modify its distribution center consolidation plan for the remainder of the year to minimize business impact. With a healthy synergy delivery, already in Q1, these modifications should have no impact to Coty’ commitment of $225 millions of synergies in fiscal 2019 and $750 millions of synergies by the end of fiscal 2020.

1Q19 reported net revenues of $2,031.3 million decreased 9.2%, with a like-for-like (LFL) revenue decline of 7.7% as Coty encountered several short supply chain-related headwinds. The company estimates these factors cumulatively negatively impacted LFL by approximately 5%, implying an underlying 1Q19 decline in the low single digits, with underlying declines limited to the Consumer Beauty division.

Specific supply chain headwinds included:

Management commentary:

“To conclude, 1Q19 was a disappointing setback in achieving our financial targets and strategic goals, and we are working hard to solve the issues. With the P&G Beauty integration near completion, and after we have overcome the internal challenges, we will be better equipped to focus more externally, so that we can fully capitalize on the exciting and dynamic changes in the beauty industry. We remain absolutely convinced that the fast-paced and ambitious transformational agenda we are pursuing, including comprehensive upgrades to our systems, processes, culture, and people, is ultimately building a much stronger Coty for the long term.”

Outlook over the near to medium term:

Looking to fiscal 2019, despite the supply chain headwinds, Coty continues to expect operating profit and margin growth in fiscal 2019, driven by significant progress in fixed cost reductions and synergy delivery. However, the company needs more time to assess the financial impacts of the continuing supply disruptions and, at this stage, management is not providing any further guidance, but expect to provide an update on its outlook on the next earnings call.

That being said, Deleveraging continues to remain the topmost priority in FY19 and beyond. The management remains committed to its target of achieving a Net Debt to adjusted EBITDA ratio of below 4.0x by the end of calendar 2020 and Coty expects positive free cash flow in the remaining quarters and in FY19. Furthermore, the company’s overall liquidity and financial flexibility are substantial, with significant flexibility from over $2 billion of revolver availability.

Analyst views and brokerage actions: Per www.marketbeat.com, Their average twelve-month price target is $12.4091, suggesting that the stock has a possible upside of 64.58%. The high price target for COTY is $20.00, and the low-price target for COTY is $7.00. There are currently one sell rating, nine hold ratings and 5 buy ratings for the stock, resulting in a consensus rating of “Hold.”

Below are the excerpts of recent ratings by brokerage house:

About the Company: Coty is one of the world’s largest beauty companies with over $9 billion in revenue, an iconic portfolio of brands and a purpose of celebrating and liberating the diversity of consumers’ beauty. As the global leader in fragrance, a strong number two in professional salon hair color & styling, and number three in color cosmetics, Coty operates three divisions: Consumer Beauty, which is focused on mass color cosmetics, mass retail hair coloring and styling products, body care and mass fragrances with brands such as COVERGIRL, Max Factor, Bourjois and Rimmel; Luxury, which is focused on prestige fragrances and skincare with brands such as Calvin Klein, Marc Jacobs, Hugo Boss, Gucci and philosophy; and Professional Beauty, which is focused on servicing salon owners and professionals in both hair and nail, with brands such as Wella Professionals, Sebastian Professional, OPI and ghd. Coty has 20,000 colleagues globally, and its products are sold in over 150 countries. Coty and its brands are committed to a range of social causes as well as seeking to minimize its impact on the environment.

Financial results:

Q3 Financial Highlights

  • 1Q19 reported net revenues of $2,031.3 million decreased 9.2%, with a like-for-like (LFL) revenue decline of 7.7% as Coty encountered several temporary supply chain-related headwinds. The company estimates these factors cumulatively negatively impacted LFL by approximately 5%, implying an underlying 1Q19 decline in the low single digits, with underlying declines limited to the Consumer Beauty division.

Specific supply chain headwinds included:

  • Warehouse and planning center consolidation disruptions in Europe and the U.S., which impacted all three divisions;
    • Component shortages from certain external suppliers, which impacted Luxury; and
    • The U.S. Hurricane Florence in the second half of September, which significantly impacted Coty’ manufacturing plant and distribution center in North Carolina, which primarily impacted the Luxury division.

Gross Margin

  • 1Q19 reported a gross margin of 60.2% decreased by 70 bps from the prior-year period, while the adjusted gross margin of 60.4% decreased by 120 bps, primarily driven by the impact of supply chain disruptions, including higher freight costs, on both Consumer Beauty and Luxury.

Net Income:

  • 1Q19 reported net loss of $12.1 million improved from a loss of $19.7 million in the prior year, while the adjusted net income of $80.5 million grew 6% from $76.3 million in the prior year, primarily due to a $32 million tax benefit in the quarter, coupled with lower interest expense, tied to higher EUR borrowings in 1Q19.

Operating Cash Flow & Net Debt:

  • In 1Q19, net cash provided by operating activities was $(81.9) million, down from $(8.9) million in 1Q18 primarily driven by continued pressures on working capital, largely connected to the supply chain disruptions, as well as an increase in integration and restructuring cash costs of over $15 million to approximately $140 million in 1Q19.
  • Coty’ 1Q19 free cash flow of $(215.5) million decreased from $(120.3) million in the prior year, driven primarily by the reduction in operating cash flow.
  • Net debt of $7,661.3 million on September 30, 2018, increased by $369.7 million from the balance of $7,291.6 million on June 30, 2018, resulting in a last twelve months Net debt to adjusted EBITDA ratio of 5.8x compared with June 30, 2018 ratio of 5.3x.

Risk Factors & Stock Influences:

  1. As the company will overcome the internal supply headwinds and complete all other major integration-related milestones, Coty will increasingly shift its focus from being largely internal to fully external and will be able to see improved performance across all the areas.
  2. The Company’ liquidity position is substantial, with significant flexibility from over $2 billion of revolver availability.
  3. The company’ mid-term goals remain one of delivering consistent, modest net revenue growth with continuous margin expansion. This, coupled with its dividend payout should drive a superior total shareholder return.
  4. The company faces competition in all aspects of its business. Therefore, in this competitive landscape, the company’s ability to sustain revenue growth while improving profitability would remain a key stock sensitivity factor. 
  5. The company operates in a rapidly changing fast paced industry.  Therefore, it must continue to launch, innovate and enhance products to maintain its substantial market share.

Stock Performance

  • On Friday, Feb 2nd, 2019, COTY closed at $7.54, with a robust average volume of 11.292 million shares exchanging hands. Market capitalization is $5.663 billion. The current RSI is 53.75
  • In the past 52 weeks, shares of COTY have traded as low as $5.91 and as high as $21.68
  • At $7.54, shares of COTY are trading above its 50-day moving average (MA) at $7.45 and below its 200-day moving average (MA) at $11.40

The present support and resistance levels for the stock are at $7.25 & $7.98 respectively.

__________________________________________________________________

About Traders News Source

Over 75% in realistic bookable gains so far in 2019

Any trader in any market would fall all over themselves to book gains like this. So, if you’ve been on the fence, perhaps it’s time to start doing some research and verify our numbers for yourself. We are constantly raising the bar and separate ourselves from the rest of the small-cap newsletters as the best in class. We know with a large following comes a large responsibility as we have everyone from the institutional investor to the beginner following our profiled securities in our newsletters. This is something we take very seriously always seeking small cap growth companies that have both near and long-term potential for our members.

View our track record, currently featured reports and updates here- https://tradersnewssource.com/traders-news-source-new-members/

***Get our small cap profiles, special situation and watch alerts in real time. We are now offering our VIP SMS/text alert service for free, simply text the word “Traders” to the phone number 25827 from your cell phone.

Pay attention, if you’re just joining us you are about to see why everyone wants to be like us.

The Traders News Team

______________________________________________________________________

Disclaimer

Traders News Source is a wholly owned subsidiary of Traders News Source LLC, herein referred to as TNS LLC.
Traders News Source has not been compensated for this report by anyone and the opinions if any are that of the author Vikas Agrawal, CFA. Author’s Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I, wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in the article.
This web site, published by TNS LLC, and is an investment newsletter that is built on the premise of assisting individual investors in learning about investing. Our goal as publishers of financial information is to provide research and analysis of investments to our subscribers. TNS LLC does not give buy or sell recommendations. We do purchase distribution rights from analyst, financial writers and bloggers for a fee that may be licensed to issue price targets and recommendations. Furthermore, we encourage you to speak to a licensed professional prior to making an investment in any type of publicly traded security.
We do sell advertising to other companies including brokerage firms, web sites, publicly traded issuers, investor relations firms, and investment publications, among others. TNS LLC makes no warranty as to the policies of these organizations, and in no way endorses their offers, services, or the content of their advertisements.
When an advertiser is a publicly traded company or a third party acting on behalf of a public company, we fully disclose all compensation in the email advertisement. Such disclosure is included in a disclosure statement in each of the advertisements sent via email.
17B Disclosure
Our reports/releases are a commercial advertisement and are for general information purposes ONLY. We are engaged in the business of marketing and advertising companies for monetary compensation. Never invest in any stock featured on our site or emails unless you can afford to lose your entire investment. The disclaimer is to be read and fully understood before using our services, joining our site or our email/blog list as well as any social networking platforms we may use.
PLEASE NOTE WELL: TNS LLC and its employees are not a Registered Investment Advisor, Broker Dealer or a member of any association for other research providers in any jurisdiction whatsoever.
Release of Liability: Through use of this website viewing or using you agree to hold TNS LLC, its operator’s owners and employees harmless and to completely release them from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. TNS LLC encourages readers and investors to supplement the information in these reports with independent research and other professional advice. All information on featured companies is provided by the companies profiled or is available from public sources and TNS LLC makes no representations, warranties or guarantees as to the accuracy or completeness of the disclosure by the profiled companies. None of the materials or advertisements herein constitute offers or solicitations to purchase or sell securities of the companies profiled herein and any decision to invest in any such company or other financial decisions should not be made based upon the information provide herein. Instead TNS LLC strongly urges you conduct a complete and independent investigation of the respective companies and consideration of all pertinent risks. Readers are advised to review SEC periodic reports: Forms 10-Q, 10K, Form 8-K, insider reports, Forms 3, 4, 5 Schedule 13D.
TNS LLC is compliant with the Can Spam Act of 2003. TNS LLC does not offer such advice or analysis, and TNS LLC further urges you to consult your own independent tax, business, financial and investment advisors. Investing in micro-cap and growth securities is highly speculative and carries an extremely high degree of risk. It is possible that an investor’s investment may be lost or impaired due to the speculative nature of the companies profiled.
The Private Securities Litigation Reform Act of 1995 provides investors a ‘safe harbor’ in regard to forward-looking statements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact may be “forward looking statements”. Forward looking statements are based on expectations, estimates, and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through use of words such as “projects”, “foresee”, “expects”, “will”, “anticipates”, “estimates”, “believes”, “understands”, or that by statements indicating certain actions & quote; “may”, “could”, or “might” occur.
Understand there is no guarantee past performance will be indicative of future results. In preparing this publication, TNS LLC has relied upon information supplied by its customers, publicly available information and press releases which it believes to be reliable; however, such reliability cannot be guaranteed. Investors should not rely on the information contained in this website. Rather, investors should use the information contained in this website as a starting point for doing additional independent research on the featured companies. The advertisements in this website are believed to be reliable, however, TNS LLC and its owners, affiliates, subsidiaries, officers, directors, representatives and agents disclaim any liability as to the completeness or accuracy of the information contained in any advertisement and for any omissions of materials facts from such advertisement. TNS LLC is not responsible for any claims made by the companies advertised herein, nor is TNS LLC responsible for any other promotional firm, its program or its structure.