Beauty products company Coty (NYSE: COTY) met Wall Streets revenue expectations in Q3 CY2025, but sales fell by 5.6% year on year to $1.58 billion. Its non-GAAP profit of $0.12 per share was 19.4% below analysts’ consensus estimates.
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Coty (COTY) Q3 CY2025 Highlights:
- Revenue: $1.58 billion vs analyst estimates of $1.58 billion (5.6% year-on-year decline, in line)
- Adjusted EPS: $0.12 vs analyst expectations of $0.15 (19.4% miss)
- Adjusted EBITDA: $296.1 million vs analyst estimates of $295.6 million (18.8% margin, in line)
- Q4 Guidance: expects next quarter's life-for-like sales growth to be at the more favorable end of prior guidance of -3% to -5%, "with sequential trend improvement in both Prestige and Consumer Beauty"
- Guidance: expects to return to adjusted EBITDA growth in two quarters, targeting $1 billion in adjusted EBITDA for the full year
- Operating Margin: 11.7%, down from 14.2% in the same quarter last year
- Free Cash Flow was $11.2 million, up from -$7.9 million in the same quarter last year
- Organic Revenue fell 8% year on year vs analyst estimates of 7.4% declines (55.7 basis point miss)
- Market Capitalization: $3.35 billion
Company Overview
With a portfolio boasting many household brands, Coty (NYSE: COTY) is a beauty products powerhouse spanning cosmetics, fragrances, and skincare.
Revenue Growth
A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years.
With $5.80 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 sluggish 2.9% compounded annual growth rate over the last three years. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.
This quarter, Coty reported a rather uninspiring 5.6% year-on-year revenue decline to $1.58 billion of revenue, in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 2.1% over the next 12 months, similar to its three-year rate. This projection is underwhelming and suggests its newer products will not lead to better top-line performance yet.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
Coty has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.5%, subpar for a consumer staples business.
Taking a step back, an encouraging sign is that Coty’s margin expanded by 1.3 percentage points over the last year. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.
Coty broke even from a free cash flow perspective in Q3. This result was good as its margin was 1.2 percentage points higher than in the same quarter last year, building on its favorable historical trend.
Key Takeaways from Coty’s Q3 Results
It was good to see Coty narrowly top analysts’ gross margin expectations this quarter. Guidance for topline and EBITDA were aso encouraging. On the other hand, its organic revenue fell slightly short of Wall Street’s estimates. Overall, this was a mixed quarter, but the outlook seemed to please investors. Still, the stock traded up 10.7% to $4.14 immediately after reporting.
Is Coty an attractive investment opportunity right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
