Green King Posted April 22, 2017 Share Posted April 22, 2017 I spent a little time on this (I own Revlon), but apart from the obvious integration/execution issues (no wonder with such a big acquisition) it bothers me they have a 2020 adjusted EPS target (some 1,51 USD per share). WTF is up with that. They seem determined to reach it if not organically then through other acquisitions. Doesn't exactly sounds value accretitive. And it gives me pause when the CEO keeps repeating that buying Younique was for strategic reasons. In my book that's usually a red flag and means you're willing to pay too much. Sure, you might get growth when you at the same time divests 6-8% of sales (probably the shitty products), but did you create value or not for shareholders? Not really sure what to think of JAB. I think they did some very expensive (at least optically) acquisitions before. Haven't spent a lot of time on this, the CEO obviously rubs me the wrong way, but at least on first glance he has a very impressive resumé, so I might be completely wrong. I've also looked at this, looks like they are very good at accounting games and deal promotion. I was wondering if you have done a comparative analysis of this vs Avon products. On the note of integration/execution issues has what they say they are doing been done by people before them or is this a game changing type of thing? TIA Link to comment Share on other sites More sharing options...
kab60 Posted April 22, 2017 Share Posted April 22, 2017 I spent a little time on this (I own Revlon), but apart from the obvious integration/execution issues (no wonder with such a big acquisition) it bothers me they have a 2020 adjusted EPS target (some 1,51 USD per share). WTF is up with that. They seem determined to reach it if not organically then through other acquisitions. Doesn't exactly sounds value accretitive. And it gives me pause when the CEO keeps repeating that buying Younique was for strategic reasons. In my book that's usually a red flag and means you're willing to pay too much. Sure, you might get growth when you at the same time divests 6-8% of sales (probably the shitty products), but did you create value or not for shareholders? Not really sure what to think of JAB. I think they did some very expensive (at least optically) acquisitions before. Haven't spent a lot of time on this, the CEO obviously rubs me the wrong way, but at least on first glance he has a very impressive resumé, so I might be completely wrong. I've also looked at this, looks like they are very good at accounting games and deal promotion. I was wondering if you have done a comparative analysis of this vs Avon products. On the note of integration/execution issues has what they say they are doing been done by people before them or is this a game changing type of thing? TIA I haven't done a comparative analysis of Avon. I went with Revlon due to valuation, low float, lack of Wall Street interest and some pretty significant management and compensation changes which indicates Perelman wants to change things around. So far I like a lot of the changes the new CEO has done and indicated, but who knows. As for Coty I believe management itself stated the acquisition of P&G's assets were among the biggest of it's kind in this line of business, but I think it's manageable with the right people in charge. I actually like some of their initiatives (at a cursory glance it seems like they wanna decentralize some stuff and give them their own P&L's which I really like). Just think it's totally flawed to commit to an EPS target almost four years out in the middle of a huge integration proces and making it clear you're sure to hit it - eventually by using the balance sheet which isn't exactly pristine. Link to comment Share on other sites More sharing options...
Green King Posted April 23, 2017 Share Posted April 23, 2017 I spent a little time on this (I own Revlon), but apart from the obvious integration/execution issues (no wonder with such a big acquisition) it bothers me they have a 2020 adjusted EPS target (some 1,51 USD per share). WTF is up with that. They seem determined to reach it if not organically then through other acquisitions. Doesn't exactly sounds value accretitive. And it gives me pause when the CEO keeps repeating that buying Younique was for strategic reasons. In my book that's usually a red flag and means you're willing to pay too much. Sure, you might get growth when you at the same time divests 6-8% of sales (probably the shitty products), but did you create value or not for shareholders? Not really sure what to think of JAB. I think they did some very expensive (at least optically) acquisitions before. Haven't spent a lot of time on this, the CEO obviously rubs me the wrong way, but at least on first glance he has a very impressive resumé, so I might be completely wrong. I've also looked at this, looks like they are very good at accounting games and deal promotion. I was wondering if you have done a comparative analysis of this vs Avon products. On the note of integration/execution issues has what they say they are doing been done by people before them or is this a game changing type of thing? TIA I haven't done a comparative analysis of Avon. I went with Revlon due to valuation, low float, lack of Wall Street interest and some pretty significant management and compensation changes which indicates Perelman wants to change things around. So far I like a lot of the changes the new CEO has done and indicated, but who knows. As for Coty I believe management itself stated the acquisition of P&G's assets were among the biggest of it's kind in this line of business, but I think it's manageable with the right people in charge. I actually like some of their initiatives (at a cursory glance it seems like they wanna decentralize some stuff and give them their own P&L's which I really like). Just think it's totally flawed to commit to an EPS target almost four years out in the middle of a huge integration proces and making it clear you're sure to hit it - eventually by using the balance sheet which isn't exactly pristine. Thanks for the reply. Fintwit solved it <blockquote class="twitter-tweet" data-lang="en"><p lang="en" dir="ltr">It's funny nobody has found a way to really cut OpEx in cosmetics. You sell products with 70%+ GMs - but have an EBITDA mgn in the teens.</p>— Shortsighted Capital (@ShortSightedCap) <a href="https://twitter.com/ShortSightedCap/status/855796657618866177">April 22, 2017</a></blockquote> <script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script> This is not like the beer business all brands are very weak. What they are doing is highly risky and capital impairment highly likely. you need a good owner operator with deep skin in the game to reduce risk. Revlon might be a good bet. For me, this is too hard since a decline in revenue will result in a decline in A&P and the businesses fundamental as a whole. Them trying to game earnings at all cost makes this a scary investment. Link to comment Share on other sites More sharing options...
ebdem Posted June 9, 2017 Share Posted June 9, 2017 Coty, a World Leader in Beauty, Has 123% Upside: http://www.barrons.com/articles/coty-a-world-leader-in-beauty-has-123-upside-1496925703?shareToken=st84e9546e6dbd42d1a27325d82e1f1c22 Link to comment Share on other sites More sharing options...
Phaceliacapital Posted June 12, 2017 Share Posted June 12, 2017 I actually like this writeup but am not too familiar with the name. Anyone here with background info that can poke holes in the case? Link to comment Share on other sites More sharing options...
CorpRaider Posted June 12, 2017 Share Posted June 12, 2017 Not long or short, just watching. But I will throw out some stuff: 1) Rollup/frenetic pace of acquisitions with related accounting/operations conflagration; 2) fragrances business is crappier/licenses fleeting popularity; 3) tier 2 brands; stale or in death spiral?; 4) Not really any cheaper than EL?; 5) New/unproven management and likely massive integration issues; 6) risk of lack of focus of JAB with Panera/entire coffee industry roll-up roaring along... Link to comment Share on other sites More sharing options...
walkie518 Posted June 13, 2017 Share Posted June 13, 2017 I had the opportunity to meet with someone from the company some time ago. I left thinking that there is a fair amount of waste at the company that will need to be addressed. Some of the waste is residue from the P&G portfolio acquisition and some are redundancies that have yet to work themselves out of the company. JAB has a reputation for instilling a very particular company culture geared to benefit shareholders. If employees don't own stock, their commitment to he company is questioned. At today's prices, however, it seems as though Coty is pricing in the $750m that's promised by management. Even at $19/sh, this is a high price for the quality of assets currently under management. If management can make the $750m threshold, Coty will be worth 20-30% more. If you trust them without clearly defining the plan, buy the stock. Will management be able to breathe new life into old brands? This will lead the stock even higher if your answer to the question is yes. However, I don't think I can answer yes with absolute certainty to either? Maybe we wait and see what next quarter brings? Link to comment Share on other sites More sharing options...
HalfMeasure Posted May 14, 2018 Share Posted May 14, 2018 Anyone still following this story? Link to comment Share on other sites More sharing options...
rogermunibond Posted May 14, 2018 Share Posted May 14, 2018 Yes, it's all about Clairol and Cover Girl turnaround in 2H 2018. Link to comment Share on other sites More sharing options...
CorpRaider Posted May 14, 2018 Share Posted May 14, 2018 Yeah, I'm long (and wrong) from mid 15's (picked up last fall). I listened to the call and read the tscript and agree will have to see how the "re-launch" of the consumer cosmetic and hair color brands go. Looks like professional and fragrance (I think they call this luxury) are doing pretty well. They still said they are still plan to realize the $750MM in synergies on the same cadence, but it seems like they are having to spend more on marketing to stabilize cover girl, max factor, and Clairol than they thought going in (but they've kind of been talking about that since they took them over from P&G). The cash used by ops and operating profitability metrics were off in q1, but like roger said they are saying that's going to turn once integration expenses drop off in second half. Seems reasonable was a massive acquisition. They also only have about half the re-launched covergirl stuff out in channel (and are behind that with max factor and Clairol). Short interest is a little high for my taste, that has been demonstrated to be statistically predictive and I thought it was due to arbitraging the transaction, but apparently not... Link to comment Share on other sites More sharing options...
HJ Posted May 14, 2018 Share Posted May 14, 2018 Not that I know anything about branding, but this portfolio of brands, Cover Girl, Max Factors, Clairol, feels very 1990's, kind of like Victoria's Secret, where brand building was all about TV / Magazine ads and super model faces, their time has come and gone? Link to comment Share on other sites More sharing options...
mwtorock Posted May 14, 2018 Share Posted May 14, 2018 I am looking at this from a different angle. So the insiders bought shares after earnings sell off last two times, and each time the stock price went up 15% or more in a week or two. So I made a small bet via calls that the same thing would happen here again (today is the beginning of insider trading window). risk/reward by my calculation is 7:1 - so if JAB does not buy, I lose my bet, and if JAB buys bunch like they did before, I get rewarded. Not a trader, but lost control of my itching fingers ;) Link to comment Share on other sites More sharing options...
HJ Posted May 14, 2018 Share Posted May 14, 2018 Not that I know anything about branding, but this portfolio of brands, Cover Girl, Max Factors, Clairol, feels very 1990's, kind of like Victoria's Secret, where brand building was all about TV / Magazine ads and super model faces, their time has come and gone? I think they are a lot older than that. Fair enough. I really don't have any data measuring the relevance of these brands to their primary customers (women of a certain age) over the years. I have a teenage daughter. She buys skin care products (Korean brand), but not other cosmetics. Her hair care products is at the suggestion of hair salon doing her hair (not Ulta). But I can see Ulta Salon having a bigger market cap than Coty. Maybe it's the transition of media, which makes it difficult for these brands to stay top of mind, maybe it's the change in distribution channel (online vs. drug store and grocery isles), maybe it's just me having the sensibility of an old male, which is totally irrelevant to this market, and totally off base. Whatever it is, it just seems like these brands needs reinvigoration, but nobody knows how in today's world. Link to comment Share on other sites More sharing options...
rogermunibond Posted May 14, 2018 Share Posted May 14, 2018 Reviving CG and Clairol in NA might be a lost cause. But COTY execs do have a playbook for doing so. Digital influencers, social media campaign, grocery/drug store displays, online sales channels. The make the case that innovation and marketing cash was cut off from old P&G brands - starved so to speak. Also, COTY execs do have some good exp with CPG marketing from RB. LO and EL have been great at maintaining their old line brands and buying new cosmetics & hair care brands when they see opportunity. LT once they get NA stabilized, I could see COTY looking to do the same with new cosmetics brand acquisitions. LO and EL also been good at selling their old line brands in EMs like China where the L'Oreal or EL name don't have the sameness of what your mother or grandmother used. In fact Oil of Olay, which P&G kept, is a fantastic brand in East Asia. COTY is starting to do the same in China. Link to comment Share on other sites More sharing options...
walkie518 Posted September 17, 2018 Share Posted September 17, 2018 Has anyone been watching recently? There has been a fair amount of mgmt turnover, but I don't know if it's a matter of meshing with JAB corporate culture or the stock decline scaring them away? Link to comment Share on other sites More sharing options...
HalfMeasure Posted November 7, 2018 Share Posted November 7, 2018 Anyone still following this? The hits just keep coming Link to comment Share on other sites More sharing options...
Saluki Posted November 8, 2018 Share Posted November 8, 2018 It got killed today, it looks like they are having some supply chain problems. This seemed like a story with two chapters to me, reducing costs through synergies (what merger hasn't promised that?) and growth of international markets like brazil etc. I read through the 10-k when the merger happened, but I couldn't get comfortable with the profit potential vs the price. Link to comment Share on other sites More sharing options...
HalfMeasure Posted November 8, 2018 Share Posted November 8, 2018 It got killed today, it looks like they are having some supply chain problems. This seemed like a story with two chapters to me, reducing costs through synergies (what merger hasn't promised that?) and growth of international markets like brazil etc. I read through the 10-k when the merger happened, but I couldn't get comfortable with the profit potential vs the price. Was already down ~50% from its 52-week high, and the quarter was still bad enough to get this big of a puke. The market sure has soured on this situation fast. The supply chain problems seem transient, but given the string of issues it seems the market is having a hard time looking past it and believing in the story at this point. How do you feel about the price now? Link to comment Share on other sites More sharing options...
CorpRaider Posted November 8, 2018 Share Posted November 8, 2018 I'm still long. Was up 35%, now down 40%. This was like the ELF inverse. The merger has definitely not gone according to plan so far. Most mergers do that. I think I need more data to draw a conclusion. Sounds like the supply chain issues were self inflicted, but I haven't listened to the call yet. I liked that in the press release they were like we screwed this up and we don't know what the impact will be for the rest of the year yet. I like the candor (re: lack of visibility) (it reminds me of a Munger example). Still, I wonder if Pane will get the axe and Becht steps back in. Still printing growth in the burberry, gucci, tiffany type stuff and the OPI/salon division. They are mote likely to do rational stuff because it is "their money." Link to comment Share on other sites More sharing options...
Spekulatius Posted November 9, 2018 Share Posted November 9, 2018 It’s the first time I ever heard about a supply chain issue with a cosmetics/ beauty company. The gross margins are so high in cosmetics , that saving a few % in manufacturing cost can’t really move the needle. A management that drives this so hard, seems inept to me and the stock reflects that Add the high debt load and you get a lot of gravity for the stock, They could do an Avon if they continue this path. Link to comment Share on other sites More sharing options...
Peregrino Posted November 9, 2018 Share Posted November 9, 2018 What I find amazing is the continued talk from management about synergies. As if anyone but the sell side bean counters cares at this point. Screw the synergies, where'd the cash flow go! They took company A with $4.3b in sales and $700m in EBITDA, combined it with company B which had $5b in sales and $1b in EBITDA. Absent synergies, you should end up with a company with $9b+ in sales and $1.7b in EBITDA. A+B=C Instead, $400m of EBITDA has disappeared. If you believe the synergy malarky they keep peddling, then even more than $400m in EBITDA has disappeared. Gets worse on an EBIT basis, where they paid $12.9b for an incremental $150m in EBIT... Personally, I got lulled into this one by JAB's involvement. Only recently sold out my position at a quite compelling loss. Frustrated as I am, I will probably keep following the company and may re-enter at some point because hope springs eternal. Link to comment Share on other sites More sharing options...
Peregrino Posted November 12, 2018 Share Posted November 12, 2018 http://investors.coty.com/phoenix.zhtml?c=251569&p=irol-newsArticle&ID=2376686 Camilo Pane (CEO) leaving for "family reasons"... NEW YORK--(BUSINESS WIRE)--Nov. 12, 2018-- Coty Inc. (NYSE: COTY) today announced the resignation of Camillo Pane, current CEO of Coty, for family reasons and the appointment of Pierre Laubies as the new CEO of Coty, effective immediately. Link to comment Share on other sites More sharing options...
CorpRaider Posted November 12, 2018 Share Posted November 12, 2018 Yeah, not surprising. I was sort of iffy about him in the first few calls. Saw that Becht is going to cede the chairman role to Harf too. Fresh eyes I suppose. Link to comment Share on other sites More sharing options...
kab60 Posted November 12, 2018 Share Posted November 12, 2018 I think I said it before in this thread but it always rubbed me the wrong way how they gave 2020 guidance a couple of years ago. Read the last conference call last night and it was a friggin' joke. When I read this part it seemed inevitable that he'd be axed: And regarding your question about the specific teams, we do, yes have specific teams that now are in – clearly looking at this planning process and the consolidation plan with the level of details and scrutiny that clearly we have never had before. I mean, that's basically saying they did a huge buyout without really planning for it. Duh. I think it's a bit interesting since they seem to have some strong brands and as long as revenue holds up (which it hasn't recently and last conference call doesn't exactly give one confidence) you'd expect them to eventually fix their problems. I mean, it shouldn't be that hard to earn a decent return when gross margins are plus 60 pct., but they completely blew their execution. Even then, I don't think valuation is attractive enough considering the large execution risks, weakness in consumer beauty and the eventual cancellation of the dividend. But I might be a bit too cheap and not fully grasp the attractiveness of the beauty space and its largely recession proof business model. Link to comment Share on other sites More sharing options...
walkie518 Posted November 12, 2018 Share Posted November 12, 2018 this is very, very bad write-offs on recent acquisitions needed to right the ship? Link to comment Share on other sites More sharing options...
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