Why Shares of Coty Inc. Are on the Decline

Image source: Coty Inc.

What happened

Shares ofCoty Inc (NYSE: COTY) fell more than 10% by the end of the trading day Wednesday, following the company's poor performance in the fiscal first quarter, on which the company reported before the market opened.

So what

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For the fiscal Q1 2017, ended Sept. 30, Coty posted sales of $1.08 billion, down 3% year over year, and zero profit, down froma net income of $125.7 million, or $0.34 per share a year ago. Adjusted for one-time costs, earnings per share were $0.23, still down 64% year over year.

Coty announced in July 2015 that it wouldacquire 44 beauty brandsfromProcter & Gamble(NYSE: PG). Management updated investors during the release that the deal officially closed on Oct. 1, and Coty has paid $11.6 billion, including$1.9 billion in assumed debt, "a savings of $1 billion from the announced July 2015 acquisition price."

Now what

Coty management seems to be blaming the poor performance this quarter on the "distraction" of getting the deal finished. Bart Becht, chairman of the board,said in the release:

Management noted that Q2 is likely to be similar in terms of low profitability but are maintaining a bullish long-term outlook. Thanks to increased sales with similar costs once all of the brands are fully merged, Coty forecasts EPS of$1.53 for fiscal 2020.

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