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Why Shares of Coty Inc. Jumped Today

What happened

Shares of Coty 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 the acquisition of 44 beauty brands from Procter & 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:

Q3 was a better quarter. The underlying net revenue trend, excluding the contributions from ghd, Younique and one month of the Brazil Acquisition, improved sequentially to -2% at constant currency compared to a high single digit decline in the first half. This improvement was driven by good growth performance in the Luxury division, flat performance in Professional Beauty, and some improvement but continued negative performance in the Consumer Beauty division.

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.