Coty Cites 'Massive Distraction' of Integration for Sales Decline
10 November 2016 - 7:10AM
Dow Jones News
Coty Inc. said the "massive distraction" involved in integrating
the $11.6 billion beauty business it acquired from Procter &
Gamble Co. led to an unexpected drop in sales, sending its shares
sharply lower.
The New York-based company Wednesday reported a 2.9% decline in
revenue for the quarter ended Sept. 30, with sales of fragrances
and color cosmetics both down 10%. The categories comprise the bulk
of Coty's $1.1 revenue for the quarter.
Analysts fretted that the sales decline reflects more of a
fundamental change in the business climate than Coty executives
acknowledged. "Help us have confidence that this really negative
trend isn't going to persist throughout the year," Citigroup
analyst Wendy Nicholson said in a call to discuss the results.
Coty Chairman Bart Becht said the company is going through a
transition bringing in the P&G brands but that now that the
integration with the new businesses is mostly complete it can
better focus on its operations. The company said its long-terms
earnings forecast remains intact.
"I think that's what you expected when you have a massive
distraction happening," Mr. Becht said. "At the same time, we
believe the longer-term outlook remains the same."
Shares of Coty fell 9.6% to $19.80 in afternoon trading, in what
would be its biggest one day fall.
The New York company has been aggressively hunting deals to
improve its business and grow its footprint. The P&G beauty
business came with labels such as CoverGirl makeup, Gucci
fragrances and Clairol hair dye.
In addition to the P&G deal, the company in October agreed
to buy hairstyle appliance maker Ghd for about $510 million. Last
year, it completed its purchase of Bourjois cosmetics from Chanel
and bought several Brazilian skin-care brands and struck a deal to
buy digital marketing firm Beamly in a bid to ramp up its
e-commerce business.
Coty paid $1 billion less for the P&G beauty brands than
initially disclosed due to an "insistence" by P&G that the deal
price be tied in part to Coty's share price, Mr. Becht said in an
interview. Coty agreed to pay $12.5 billion for the business when
it struck the deal in July 2015.
Coty shares rose between the time the deal was struck and its
closing, which pushed the final deal price down. "We knew what our
plans were and we had confidence that our share price might
increase further," he said. "We got a very nice discount."
P&G couldn't immediately be reached for comment. Company
executives have said previously that, despite the lower price,
P&G got a good price for the business.
For the quarter, Coty posted no profit, compared with net income
of $125.7 million in the same period a year ago.
Write to Sharon Terlep at sharon.terlep@wsj.com
(END) Dow Jones Newswires
November 09, 2016 14:55 ET (19:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Procter and Gamble (NYSE:PG)
Historical Stock Chart
From Apr 2024 to May 2024
Procter and Gamble (NYSE:PG)
Historical Stock Chart
From May 2023 to May 2024