Coty Inc. reports third quarter fiscal 2018 results

Coty Inc. reports third quarter fiscal 2018 results
Coty Inc. reports third quarter fiscal 2018 results



Coty Inc. reports
third quarter
fiscal 2018 results




PRESS RELEASE
May 9, 2018

 
Positive Net Revenue Performance
Strong Growth in Reported and Adjusted Operating Profit
 
Coty Inc. (NYSE: COTY) today announced financial results for the third quarter of fiscal year 2018, ended March 31, 2018.       
* As compared to combined Coty and P&G Beauty Business net revenues (herein defined as “Combined Company”). These measures, as well as “free cash flow,” are Non-GAAP Financial Measures. Refer to “Basis of Presentation” and “Non-GAAP Financial Measures” for a discussion of these measures. Net Income represents Net Income Attributable to Coty Inc. Reconciliations from reported to adjusted results can be found at the end of this release. Combined Company year-over-year change in net revenues is presented giving effect to the completion of the acquisition of the P&G Beauty Business (the "Merger"), as if the Merger had occurred as of July 1, 2016
Third Quarter Fiscal 2018 Summary
  • Net revenues of $2,222.7 million increased 9.4% as reported compared to the prior year and increased 3.4% at constant currency
     
  • Excluding the contribution from the acquisitions of Burberry and one month of Younique, organic net revenues increased 0.2% on a constant currency basis
     
  • Reported operating income of $19.9 million increased from a loss of $(192.5) million
     
  • Adjusted operating income of $227.8 million increased 9.4% from $208.3 million
     
  • Reported net loss of $(77.0) million decreased from $(164.2) million, and adjusted net income of $96.2 million decreased from $110.3 million
     
  • Reported earnings per diluted share of $(0.10) increased from $(0.22) and adjusted earnings per diluted share of $0.13 decreased from $0.15
     
  • Net cash from operating activities was $(118.9) million compared to $43.3 million in the prior year
Nine Months Fiscal 2018 Summary
  • Net revenues of $7,098.6 million increased 31.2% as reported compared to the prior year net revenues, and increased 6.3% for the combined company at constant currency
     
  • Excluding the contribution from the acquisitions of Burberry, seven months of Younique and five months of ghd, organic net revenues increased 0.3% on a constant currency basis
     
  • Reported operating income of $223.0 million increased from $(158.8) million
     
  • Adjusted operating income of $770.4 million increased from $682.7 million
     
  • Reported net income of $12.5 million increased from $(117.4) million, and adjusted net income of $409.7 million was in line with the prior period of $411.9 million
     
  • Reported earnings per diluted share of $0.02 increased from $(0.19), and adjusted earnings per diluted share of $0.54 decreased from $0.67
     
  • Net cash provided by operating activities was $188.9 million compared to $706.7 million in the prior year

Commenting on Coty's performance, Camillo Pane, Coty CEO said:
 
"Our results were generally in line with our expectations, as we delivered steady performance with modest positive organic top line growth and healthy adjusted operating profit improvement. The Luxury division continued to deliver  very strong results, while our Professional Beauty division once again demonstrated consistent solid growth. The Consumer Beauty division continued its uneven performance, but with encouraging signs of stability.
 
We continued to reshape our growth profile by strengthening our iconic global brands, supported by recent relaunches. We are also fueling smaller brands with high growth potential and stabilizing the remaining portfolio including the conclusion of our previously communicated portfolio rationalization program. This streamlining of our portfolio is an important milestone that will allow us to focus on those brands where we believe we are particularly suited to drive long term revenue growth.
 
Though there is still much work to be done, including the continued integration of the P&G Beauty business, I am encouraged by how far we have come since embarking on our journey to transform Coty into a challenger in the global beauty industry.
 
As we have said, recovery will not be a straight line, but we continue to aim to deliver modest organic net revenue growth for the second half of the year. For adjusted operating margin, we continue to aim for a healthy improvement in the second half of the year versus the prior year, with most of the impact coming in Q4, as we continue to deliver on our merger synergies."
Basis of Presentation
To supplement financial results presented in accordance with GAAP, certain financial information is presented in this release using the non-GAAP financial measures described in this section. The term “combined company” describes net revenues of Coty Inc. and the P&G Beauty Business giving effect to the Merger for purposes of the nine months ended March 31, 2018, as compared to the nine months ended March 31, 2017, as if it had occurred on July 1, 2016. Combined company period-over-period and combined company constant currency period-over-period do not include any adjustments related to potential profit improvements, potential cost savings or adjustments to fully conform to the accounting policies of Coty. "Constant currency” describes net revenues excluding the effect of foreign currency exchange translations. The term “adjusted” primarily excludes the impact of restructuring and business realignment costs, amortization, costs related to acquisition activities, and certain interest expense and other (income) expense items to the extent applicable. Refer to “Non-GAAP Financial Measures” below for additional discussion of these measures as well as the definition of free cash flow.
 
Net revenues for the three months ended March 31, 2018, as compared to three months ended March 31, 2017, are reported by segment and geographic region and are presented on a reported (GAAP) and a constant currency basis. Net revenues for the nine months ended March 31, 2018, as compared to nine months ended March 31, 2017, are reported by segment and geographic region and are presented on a reported (GAAP), combined company and combined company constant currency basis. Certain percentages may not agree to the tables due to rounding. Operating income is reported by segment. All changes in margin percentage are described in basis points rounded to the nearest tenth of a percent.
 
Operating income, net income, operating income margin, gross margin, effective tax rate, and earnings per diluted share (EPS (diluted)) are presented on a reported (GAAP) basis and an adjusted (non-GAAP) basis. Adjusted EPS (diluted) is a performance measure and should not be construed as a measure of liquidity.  Net revenues on a constant currency basis, net revenues on a combined company basis, net revenues on a combined company constant currency basis, adjusted operating income, adjusted operating income on a constant currency basis, adjusted operating income margin, adjusted effective tax rate, adjusted net income, adjusted gross margin, adjusted EPS (diluted) and free cash flow are non-GAAP financial measures. Refer to "Non-GAAP Financial Measures" below for additional discussion of these measures. A reconciliation between GAAP and non-GAAP results can be found in the tables and footnotes at the end of this release.
 
To the extent that Coty provides guidance, it does so only on a non-GAAP basis and does not provide reconciliations of such forward-looking non-GAAP measures to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, including adjustments that could be made for restructuring, integration and acquisition-related expenses, amortization expenses, adjustments to inventory, and other charges reflected in our reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.
Third Quarter Fiscal 2018 Summary Operating Review
Net revenues of $2,222.7 million increased 9.4% as reported compared to the prior year and increased 3.4% on a constant currency basis. The 3.4% constant currency net revenue growth reflected a 3.2% contribution from Burberry Beauty and one month of Younique, and 0.2% increase in organic net revenue growth, which includes two months of Younique. Organic net revenue growth was driven by strong performance in Luxury and steady momentum in Professional Beauty, partially offset by a decline in Consumer Beauty.
 
Gross margin of 63.4% increased significantly from 59.8% in the prior year, while adjusted gross margin increased 100bps to 64.3% from 63.3% with strength in all three divisions and mainly due to the realization of benefits from our synergy program.
 
Reported operating income increased to $19.9 million from a loss of $(192.5) million, primarily due to higher gross profit and lower acquisition costs.
 
Adjusted operating income increased 9.4% to $227.8 million from $208.3 million driven by improved gross margin and tight cost controls, which were partially offset by increased marketing spend to support multiple brand relaunch efforts.
 
Reported effective tax rate was (7.9)% compared to 36.9%.
 
Adjusted effective tax rate was 23.8% compared to 22.2%.
 
Reported net loss decreased to $(77.0) million from $(164.2) million, primarily due to higher operating income partially offset by higher interest and tax expense.
 
Adjusted net income of $96.2 million decreased from $110.3 million, reflecting increased interest and redeemable non-controlling interest expense, partially offset by higher adjusted operating income.
Cash Flows
  • Net cash from operating activities in the quarter was $(118.9) million, compared to $43.3 million in the prior year, driven by higher working capital requirements due, in part, to the Burberry Beauty acquisition and build-up of inventory in preparation for consolidation of certain distribution centers.
     
  • Negative free cash flow of $(205.4) million in the quarter compared to $(82.5) million in the prior year reflects higher cash used in operating activities partially offset by lower capital expenditures.
     
  • On March 15, 2018, the Company paid a quarterly dividend of $0.125 per share for a total of $93.8 million.
     
  • Cash and cash equivalents of $460.8 million decreased by $74.6 million compared to June 30, 2017.
    Total debt of $7,931.2 million increased by $715.6 million while net debt of $7,470.4 million increased by $790.2 million from the balance on June 30, 2017 driven in part by the acquisition of the Burberry Beauty business.

Third Quarter Fiscal 2018 Business Review by Segment

Luxury
  • Reported net revenues of $752.5 million increased 18.6% compared to the prior year and 11.8% on a constant currency basis. The increase in constant currency reflects 6.1% organic growth driven by the on-going success of Tiffany & Co. and Gucci Bloom fragrances as well as CK One and Chloe Nomade, and a 5.7% contribution from Burberry.
     
  • Adjusted operating income of $100.4 million increased 16.6% from $86.1 million in the prior year.
Consumer Beauty
  • Net revenues of $1,021.7 million increased 3.3% compared to the prior year and decreased (1.2)% on a constant currency basis. The decrease in constant currency reflects a (4.4)% decline in organic growth, which includes two months of Younique. The decline in our organic net revenue growth was driven by certain U.S. brands not yet fully benefiting from relaunch efforts and the impact of pricing actions to improve profitability in our Brazil business, partially offset by growth in the rest of ALMEA.
     
  • Adjusted operating income decreased 19.9% to $97.3 million from $121.5 million in the prior year.
Professional
  • Net revenues of $448.5 million increased 9.7% compared to the prior year and 1.9% on a constant currency basis. The 1.9% growth in the underlying business reflects higher net revenues from OPI due to on-going success of the gel restage as well as strength in lacquers. Wella Professionals also continues to benefit from the successful Wellaplex product launch.
     
  • Adjusted operating income increased >100% to $30.1 million from $0.7 million in the prior year
Third Quarter Fiscal 2018 Business Review by Geographic Region
North America
  • Reported net revenues increased 4.0% compared to the prior year and increased 3.5% on a constant currency basis, driven primarily by the contributions from Younique and Burberry, the on-going success of Tiffany & Co. and Gucci Bloom and certain mass fragrances, partially offset by declines in U.S. color cosmetics. OPI was also a contributor.
 
Europe
  • Reported net revenues increased 15.1% compared to the prior year and increased 2.7% on a constant currency basis driven primarily by incremental revenues from the success of fragrances including Tiffany & Co. and Gucci Bloom as well as Max Factor.
 
ALMEA
  • Reported net revenues increased 7.0% compared to the prior year and increased 4.8% on a constant currency basis reflecting incremental revenues from fragrances driven by the launches of Tiffany & Co. and Gucci Bloom, and higher revenues from color cosmetics driven by Max Factor in China, partially offset by lower revenues in Brazil.
Noteworthy Company Developments
 Other noteworthy company developments include:
  • On April 5, 2018, Coty completed its previously announced offering of three series of U.S. dollar denominated and euro denominated senior unsecured notes in an aggregate principal amount of $550 million and €800 million, in a private offering.
     
  • On April 5, 2018, Coty entered into a credit agreement which amended and restated the existing credit agreements. The credit agreement provides for senior secured credit facilities comprised of (i) a five year revolving credit facility in an aggregate principal amount up to $3.25 billion, (ii) a five year term loan A facility consisting of (a) $1.0 billion denominated in U.S. dollars and (b) €2.035 billion denominated in Euros and (iii) a seven year term loan B facility consisting of (a) $1.4 billion denominated in U.S. dollars and (b) €850 million denominated in Euros.
     
  • On April 25, 2018, Coty announced the appointment of Esra Erkal-Paler as Chief Global Corporate Affairs Officer and member of the Executive Committee.
     
  • On May 9, 2018, Coty announced a dividend of $0.125 per share, payable June 14, 2018 to holders of record on May 31, 2018.
     
  • After the quarter close, Coty has completed the previously announced portfolio rationalization program.
Conference Call
Coty Inc. will host a conference call at 8:00 a.m. (ET) today, May 9, 2018 to discuss its results. The dial-in number for the call is (855) 889-8783 in the U.S. or (720) 634-2929 internationally (conference passcode number: 8276807). The call will also be webcast live at http://investors.coty.com. The conference call will be available for replay. The replay dial-in number is (855) 859-2056 in the U.S. or (404) 537-3406 outside the U.S. (conference passcode number: 8276807).
About Coty Inc.
Forward Looking Statements
For more information:
Non-GAAP Financial Measures
Additional Tables
Click here for Additional Tables.