Why Coty shares fell again today

What happened

Shares of Quoted (NYSE: COTY) fell again today as investors continued to react to a disappointing earnings report on Monday and news that the company was selling a majority stake in its professional beauty business. A downgrade by analysts of the stock this morning and a sell-off in the market also helped push the stock lower.

As of 12:12 p.m. EDT, the stock was down 15%, after losing 8% on Monday and falling 9.4% yesterday.

Image source: Getty Images.

So what

Coty said Monday that third-quarter revenue fell 23.5% to $1.53 billion, due to the impact of COVID-19[female[feminine. Organic sales, which exclude the impact of acquisitions and divestitures, fell 19.5%, slightly below analyst estimates of $1.55 billion.

Ultimately, the cosmetics company posted adjusted operating profit of $0.1 million, down from $229.5 million in the year-ago quarter. Per share, Coty ended with a loss of $0.08, compared to a profit of $0.13 a year ago. It was also worse than expectations for a loss of $0.01 per share.

Additionally, Coty sold a 60% stake in its professional beauty and haircare business to private equity firm KKR for $4 billion, including $1 billion in shares convertible on terms favorable to KKR and $3 billion in cash. The sale will help Coty deleverage its balance sheet, and the market initially applauded the move. However, the stock quickly succumbed to pessimism about the cosmetics maker’s future.

This morning, Exane BNP Paribas downgraded Coty stock from neutral to outperforming, as analyst Mikheil Omanadze said the company still faced structural issues as it was in the midst of a turnaround before the pandemic hit. hit.

Stocks also fell broadly after Federal Reserve Chairman Jerome Powell made cautious remarks on the economic recovery.

Now what

Coty shares are looking cheap now, trading at less than $4/share, and the deal with KKR will certainly help its finances. But cosmetics sales could be down for the foreseeable future as the pandemic keeps people at home, making large gatherings essentially impossible, reducing the need for personal beautification products. The company said it will cut $700 million in fixed costs this year, but it will likely take several quarters before business returns to previous levels.

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