Why Coty Inc (NYSE: COTY) stock killed it

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Coty Inc (NYSE: COTY) stock surged 31.97% on Feb 8th, 2019 (Source: Google finance) after the company posted better than expected results for the second quarter of FY 19 on the back of growth in the Luxury segment. Coty ended the quarter with cash and cash equivalents of $417.5 million and net long-term debt of $7,560.9 million. During the second quarter, the company had generated $319.6 million as net cash from operating activities and free cash flow of $193.9 million. Meanwhile, the company announced dividend of 12.5 cents a share, payable on Mar 15 to shareholders of record as on Feb 28. However, the top and the bottom-line declined year on year in the reported quarter, due to weakness in the Consumer and Professional Beauty channels. Supply chain disruptions were a drag on these units.

COTY in the second quarter of FY 19 has reported the adjusted earnings per share of 24 cents, beating the analysts’ estimates for the adjusted earnings per share of 22 cents, as per Zacks Consensus Estimate. The company had reported 4.8 percent fall in the adjusted revenue to $2511.2 million in the second quarter of FY 19, beating the analysts’ estimates for revenue of $2472 million.

Moreover, on a regional basis, net revenues in North America were flat (up 2% LFL basis) year on year and totaled $742.2 million. The segment’s performance gained from growth in the Luxury category, while softness in Consumer Beauty and Professional Beauty were deterrents. Sales in Europe tanked 7% (down 4% LFL) to reach $1,201.6 million, as improvements in Luxury were countered by weakness in Consumer Beauty. Sales in the ALMEA region declined 5% to $567.4 million. Nevertheless, sales in the region improved 2% on LFL basis, courtesy of solid momentum in Luxury and Professional Beauty.

Additionally, Luxury continues to drive exceptional financial performance with 41% adjusted operating income growth in the second quarter and 29% in the first half, contributing to a 15.4% adjusted operating margin in the first half. Professional beauty next, second quarter like for like trends improved sequentially with a decline of 0.8%, including the negative effect of supply chain disruption. These disruptions are impacting the business, including Wella whereas disproportionately impacted the OPI brands, disrupting sequence of the brands both in North America and internationally.

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