Beauty products maker Coty Inc. (COTY) on Wednesday reported a loss for the third quarter, reflecting an asset impairment charge at its skin and body-care segment that offset higher revenues.
Coty also said it has entered into a partnership agreement with Avon Products Inc. (AVP) for Brazil, under which certain Coty fragrances will be marketed in the emerging market through Avon Brazil's network of independent sales representatives.
New York-based Coty's net loss for the third quarter was $253.3 million or $0.66 per share, compared to net income of $20.4 million or $0.05 per share in the prior-year quarter.
In the latest quarter, the company recorded a non-cash asset impairment charge of $316.9 million in the Skin & Body Care segment. Coty noted that actions taken by it to revamp the TJoy business in the China mass channel have not improved the actual and projected cash flows in the business. As a result, the company recorded the non-cash impairment charge.
Coty added that it is actively evaluating a number of options for its mass channel business in China, with the objective of further improving profitability in the region and in the Skin & Body Care segment.
Adjusted earnings for the latest quarter were $86.7 million or $0.22 per share, compared to $68.4 million or $0.17 per share in the year-ago period. On average, 12 analysts polled by Thomson Reuters expected the company to report profit per share of $0.09 for the quarter. Analysts' estimates typically exclude special items.
The adjusted earnings results for the latest quarter reflect higher net revenues and an increase in one-time income tax benefits of $14.3 million, partially offset by lower adjusted operating income margin.
Revenues for the quarter edged up 1 percent to $1.01 billion from $997.7 million in the same period last year. On a like-for-like basis, revenues increased 2 percent. Analysts had a consensus revenue estimate of $1.00 billion for the quarter.
Gross margin declined to 60.8 percent from 61.7 percent in the year-ago period.
Revenues at the Fragrances segment grew 4 percent in the quarter to $508.1 million, supported by growth in four out of Coty's five Fragrances power brands - Calvin Klein, Davidoff, Marc Jacobs, and Playboy.
Skin & Body Care revenues rose 8 percent to $155.7 million with growth across all key brands. Philosophy continued its growth momentum, adidas benefited from its traction in emerging markets, and Lancaster saw strong growth particularly in the sun category.
Meanwhile, Color Cosmetics revenue declined 6 percent to $344.9 million, reflecting pressure on Sally Hansen as a result of continued weakness in the the U.S. nail category. This was partially offset by strong Rimmel performance.
Looking ahead, Coty forecast the fourth quarter to be overall flat due to comparison with a strong quarter in the prior-year period. However, the company is targeting growth acceleration in the first half of fiscal year 2015 supported by a powerful innovation plan on its Power brands and further development in the emerging markets.
Street expects the company to earn $0.11 per share for the quarter on revenues of $1.08 billion.
Michele Scannavini, CEO of Coty, said, "While market conditions remain challenging in some product segments in parts of the world, we are sticking to our current strategy and targeting for continued growth for the remainder of the calendar year while working to significantly improve the cost profile of the business."
In a separate statement, Coty that it has entered into a partnership agreement with Avon Products, under which select Coty fragrances will be marketed in the emerging market through Avon Brazil's network of 1.5 million independent sales representatives.
Coty noted that the deal will increase its footprint in Brazil, Avon's largest market, and also the largest fragrance market globally. The deal is an effort to increase both companies' global fragrance market share, consumer loyalty and brand appeal in Brazil.
COTY closed Tuesday's trading at $15.44, down $0.40 or 2.53 percent on a volume of 2.39 million shares.
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