Beauty products company Coty (NYSE:COTY) fell short of the market’s revenue expectations in Q4 CY2024, with sales falling 3.3% year on year to $1.67 billion. Its non-GAAP profit of $0.11 per share was 47.7% below analysts’ consensus estimates.
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Coty (COTY) Q4 CY2024 Highlights:
- Revenue: $1.67 billion vs analyst estimates of $1.72 billion (3.3% year-on-year decline, 3.1% miss)
- Adjusted EPS: $0.11 vs analyst expectations of $0.21 ($0.10 miss)
- Adjusted EBITDA: $390.7 million vs analyst estimates of $382.7 million (23.4% margin, 2.1% beat)
- Operating Margin: 16.1%, up from 13.7% in the same quarter last year
- Free Cash Flow Margin: 25.1%, up from 21% in the same quarter last year
- Organic Revenue was down 1% year on year
- Market Capitalization: $5.88 billion
Company Overview
With a portfolio boasting many household brands, Coty (NYSE:COTY) is a beauty products powerhouse spanning cosmetics, fragrances, and skincare.
Personal Care
While personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years.
With $6.09 billion in revenue over the past 12 months, Coty carries some recognizable products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.
As you can see below, Coty grew its sales at a mediocre 6.5% compounded annual growth rate over the last three years. This shows it couldn’t generate demand in any major way and is a tough starting point for our analysis.
This quarter, Coty missed Wall Street’s estimates and reported a rather uninspiring 3.3% year-on-year revenue decline, generating $1.67 billion of revenue.
Looking ahead, sell-side analysts expect revenue to grow 4.3% over the next 12 months, a slight deceleration versus the last three years. This projection is underwhelming and suggests its products will see some demand headwinds.
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Cash Is King
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Coty has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.3% over the last two years, slightly better than the broader consumer staples sector.
Taking a step back, we can see that Coty’s margin was unchanged over the last year, showing it recently had a stable free cash flow profile.
Coty’s free cash flow clocked in at $419 million in Q4, equivalent to a 25.1% margin. This result was good as its margin was 4.1 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.
Key Takeaways from Coty’s Q4 Results
Coty's organic revenue fell short of Wall Street’s estimates, and EPS missed as well. Overall, this quarter could have been better. The stock traded down 3.1% to $6.56 immediately following the results.
Coty’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
