Why Coty, Inc. Stock Fell Tuesday

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What happened

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Shares of Coty (NYSE: COTY) fell as much as 17.7% on Tuesday after the beauty product company reported its results for its fiscal fourth quarter of 2017. But the stock recovered some of its loss and finished the trading day down 9.4%.

For its fourth quarter, Coty reported revenue of $2.24 billion and a loss per share of $0.41. On an adjusted basis, earnings per share was about breakeven. Investor pessimism on Tuesday likely reflected the company's lower-than-expected adjusted loss per share. While Coty's $2.24 billion in revenue exceeded a consensus estimate for revenue of $2.16 billion, its adjusted EPS of about $0.00 was well below a consensus estimate for $0.09.

So what

Coty's worse-than-expected loss per share reflected rising marketing spend and higher-than-expected costs associated with its acquisition of a range of Procter & Gamble beauty products last year. A "higher combined company fixed cost base" weighed on profitability, management explained.

Now what

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Management admitted that its cost base is "not where it should be." But it said in its fourth-quarter press release that it is rapidly addressing its high fixed cost base as part of its "synergy program and organic efficiency initiatives."

Going forward, Coty says it is prioritizing addressing its high fixed cost base in fiscal 2018.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.