Why Shares of Coty Inc. Jumped Today

What happened

Shares ofCoty Inc. (NYSE: COTY) surged as much as 15% in early trading today after the company reported better-than-expected fiscal third-quarter earnings, including increased confidence in the rest of its fiscal year.

So what

For the quarter, Coty posted sales grew more than 100%, as a result of theacquisition of 44 beauty brandsfromProcter & Gamble(NYSE: PG)in late 2016 On a combined company basis, adjusting for the added PG Beauty brand's year-over-year growth, sales were still up about 5%. However, even that takes into account a few other small acquisitions, and excluding those, sales were down 2% over the same period in 2016.

The company reported a loss of $0.22, which is down from the $0.08 loss in the same period last year. Most of that looks like a rough quarter, but Coty's adjusted income of $0.15 per share was better than analysts had expected -- hence today's stock rise.

Image source: Coty Inc.

Now what

Coty management has expressed confidence throughout the year, even as adjusted sales continue to lag. In this release, CEO Camillo Pane spoke candidly in the earnings release, saying that 2017 was "a transitional year and the path to recovery will take some time and will not be a straight line." Still, Pane believes that the sales trend is improving:

Management plans to continue to invest in product development, revamp its in-store experience, and accelerate its e-commerce distribution. Even though this fiscal year has been mixed, the company has been very bullish on its long-term growth, reporting in its first-quarter earnings that it anticipates 2020 earnings per share of$1.53, which would be three times higher than reported fiscal 2016 EPS.

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