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Coty Declines as Investors Wait for Post-P&G Deal Strategy

Coty Inc. shares fell the most in more than seven weeks after the company posted its second straight net loss and investors wait for more insight about its pending merger with Procter & Gamble Co.’s beauty brands.
Calvin Klein Reveal fragrance | Source: Coty Inc.
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  • Bloomberg

NEW YORK, United States — Coty Inc. shares fell the most in more than seven weeks after the company posted its second straight net loss and investors wait for more insight about its pending merger with Procter & Gamble Co.'s beauty brands.

The shares slipped 4.9 percent, the biggest single-day drop since June 24. Before the tumble, the stock had gained 16 percent this year — including 11 percent in August alone.

Coty is working to integrate more than 40 Procter & Gamble Co. beauty brands, including Gucci fragrances, CoverGirl cosmetics and Max Factor makeup. The $12.5 billion deal with P&G, announced in July 2015, is expected to turn Coty into the world's third-largest cosmetics company when it closes in October. Coty then plans to divest a number of brands, including some fragrances, so it can focus on the key names.

The investor unrest muted what was otherwise a relatively positive fourth-quarter report for Coty. Though its net loss was $31 million, the results beat analysts’ estimates by most measures. Excluding some items, profit was 13 cents a share in the period ended June 30, the New York-based company said in a statement Tuesday. Analysts projected 6 cents, on average. Sales were $1.08 billion, topping the average estimate of $1.05 billion.

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Seeing Uncertainty

The company said it is premature to comment on the outlook for the combined business before the completion of the deal.

“There’s just a lot of uncertainty” about the health of both businesses, said Jason Gere, an analyst at KeyBanc Capital Markets Inc. “The stand-alone business was fine for what they’ve been delivering, but they did not give a lot of colour in terms of the P&G business, and you have to start looking at this as a combined company.”

Coty said it has benefited from the performance of its core cosmetics brands and the acquisitions of the personal-care and beauty division of Brazil’s Hypermarcas SA and the Bourjois cosmetics line. The purchases, combined with launches of new fragrances and cosmetics, will continue to help performance this year, Bart Becht, chairman and interim chief executive officer, said in an interview.

The company said it has a target of returning net revenue at the businesses it currently owns to growth in the second half of the fiscal year, excluding the effects of currency-exchange rates.

In July, Coty promoted Camillo Pane, formerly a vice president for category development, to the job of chief executive officer. Staffing related to the P&G deal is “pretty much complete,” and the company is on track to complete the acquisition in October, Becht said.

More Acquisitions?

Coty will consider further acquisitions if they will help the company to expand a category or geographically, but it will first prioritise growing organically, Becht said on a conference call Tuesday.

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When the P&G transaction is completed, Coty will rank only behind L’Oréal SA and Estee Lauder Cos. in cosmetic sales. That’s up from its current eighth spot, overtaking peers such as Avon Products Inc. and Shiseido Co. The deal will also make it the world’s largest in fragrance and third-largest in colour cosmetics.

"The very strong focus that we will have in the new organisation behind few categories and channels of distribution will help us to be more competitive in the market place," Becht said. Gucci and Marc Jacobs are among the brands that the company will prioritise, he said.

By Stephanie Wong; editors: Nick Turner and Kevin Orland.

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