Coty Stock Cheered Investors in Fiscal 2Q16 Due to Acquisitions
Fiscal 2Q16 gross margin results
Coty (COTY) reported a slight improvement in its adjusted gross margin in fiscal 2Q16. The adjusted gross margin increased by 130 basis points to 61.5%. It was driven by supply chain efficiencies and a lower level of promotional and discounted pricing activity.
Adjusted operating income
Coty’s adjusted operating income rose by 7.6% to $0.2 billion in fiscal 2Q16. On a constant-currency basis, the adjusted operating income rose by 14%. The reported operating margin fell to 12.6%. The adjusted operating margin grew by 180 basis points to 17.7% from 15.9%. This included an increase of 330 basis points in Color Cosmetics, 420 basis points in Skin & Body Care, and 20 basis points in Fragrances.
Procter & Gamble’s (PG) operating profit margin for fiscal 2Q16 was 22.8%—compared to 19.4% in 1Q15. Other companies like Estee Lauder (EL) and Avon (AVP) haven’t released their quarter earnings yet. Estee Lauder’s operating margin rose to ~16% in fiscal 1Q16—compared to 13.2% in fiscal 1Q15. Avon’s adjusted operating income fell by 72.5% to $0.05 billion in calendar 3Q15.
Cash flow generation
Year-to-date in fiscal 2016, Coty generated $517.1 million in operating cash flow and $438.7 million in free cash flow. Each of the cash flows rose over $160 million compared to last year. Through its global efficiency program, Coty recognized cumulative savings of ~$170 million for fiscal 2Q16. It was driven by:
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fixed cost reduction in direct procurement savings
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footprint consolidation
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more streamlined operations in China
Margin accretive
Recently, Coty acquired Bourjois’s businesses. They were integrated within Coty’s local subsidiaries. Bourjois and Coty’s processes and information technology are being aligned. This will be a good growth opportunity for the brand. It will also be margin accretive to the color business in fiscal 2017.
Coty accounts for 0.1% of the PowerShares FTSE RAFI US 1500 Small-Mid Portfolio ETF’s (PRFZ) total weight.
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