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Will Marketing Spend Weigh on Coty's (COTY) Q1 Earnings?

Coty Inc COTY is slated to report first-quarter fiscal 2018 results on Nov 9, before the opening bell.

The company has been undertaking several efforts to augment its portfolio and transform its brands. Such initiatives led to higher fixed and operating costs, which are weighing on the company’s profitability. The company’s earnings lagged the Zacks Consensus Estimate in three out of the trailing four quarters, with an average negative surprise of 27.7%.

Also, these factors have caused Coty’s shares to decline 15.5% in the past six months, as against the industry’s increase of 8.2%.



With these aspects in mind, let’s look into some factors that are likely to impact the company’s first-quarter results.

What to Expect?

The Zacks Consensus Estimate for the quarter under review has been stable in the past 30 days at 7 cents per share. The estimated earnings figure reflects a decline of 69.6% from the year-ago figure of 23 cents. 

However, analysts polled by Zacks expect revenues of $2,224 million for the first quarter, a substantial increase from the prior-year reported sales of $1,080 million.

Coty Inc. Price, Consensus and EPS Surprise



Factors Impacting the Quarter

Product launches are expected to continue driving Coty’s performance in the first quarter of fiscal 2018. The company consistently introduces new products in response to shifting consumer preferences and makes use of strategic advertising and merchandising skills to market new launches. In this regard, the company made several launches during fiscal 2017 including products like Hugo Iced, Boss Tonic and Chloe Love Story Eau Sensuelle. Additionally, Coty is expected to benefit from its ongoing repositioning and reinvention of the COVERGIRL brand.

Furthermore, Coty continuously evaluates strategic acquisitions and new brand licenses to enhance its portfolio. In this respect the company has been significantly gaining from the acquisitions of ghd and Younique. Positive synergies from the company’s acquisitions and licensing agreements are expected to benefit first-quarter fiscal 2018 results as well. The company has also been undertaking digital transformation efforts to augment its e-commerce offerings.

While we expect such efforts to positively impact the company’s top line, the bottom-line performance is anticipated to remain challenged due to enhanced marketing expenses. Although the company’s acquisitions, product launches and brand transformation efforts have strengthened its portfolio, such efforts have led to increased marketing spending. Moreover, the company expects increased fixed costs and operating expenses during the first half of fiscal 2018, owing to higher marketing investments.

Further, the company has been facing several headwinds in its Consumer Beauty segment, especially in North America. Weak market trends across some of its categories and reduction of shelf space for a few brands like Astor has been dragging the segment’s performance lately. These trends are also expected to affect the company’s first-quarter fiscal 2018 results.

What Does the Zacks Model Unveil?

Our proven model does not show that Coty is likely to beat estimates this quarter. This is because a stock needs to have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) as well as a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although, Coty currently carries a Zacks Rank #3, its Earnings ESP of -5.57% makes surprise prediction difficult.

Stocks With Favorable Combinations

Here are some companies which, according to our model, have the right combination of elements to deliver earnings beat.

Nomad Foods Limited NOMD has an Earnings ESP of +8.70% and flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here

Energizer Holdings Inc ENR has an Earnings ESP of +0.35% and carries a Zacks Rank #2.

McCormick & Company, Incorporated MKC has an Earnings ESP of +0.49% and holds a Zacks Rank #2.

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