Moody's Affirms Coty's Ba1 Rating, Outlook Negative

Key Rating Action on Coty Inc.

Moody’s Ratings has affirmed Coty Inc.’s Ba1 Corporate Family Rating but has revised the company's outlook from stable to negative. The change is primarily driven by weaker-than-expected operating performance and concerns over prolonged elevated leverage.

Rating Rationale Overview

The negative outlook reflects projections that Coty's leverage will rise to approximately 4.0x debt-to-EBITDA in fiscal 2026, a level higher than previously anticipated. Despite this, the Ba1 rating affirmation is supported by Coty’s consistent free cash flow generation, estimated at $250-$300 million annually, and successful deleveraging following the Wella sale.

Market Impact and Future Risks

Uncertainty is heightened by an upcoming CEO transition and an ongoing strategic review. Furthermore, Coty's business remains concentrated in the fragrance and color cosmetics categories, which are susceptible to volatility during economic downturns. A potential rating upgrade would require sustained performance and leverage reduction below 2.75x.

Summary

While Coty’s Ba1 rating is maintained, the negative outlook signals potential credit pressure. The company must address its leverage and navigate leadership changes to restore a stable outlook. Market participants will monitor performance metrics closely in the coming quarters.

FAQ

Q: Why did Moody's change Coty's outlook to negative?
A: The outlook was changed due to weaker operating performance and expectations that financial leverage will remain elevated for a prolonged period.

Q: What is Coty's current credit rating from Moody's?
A: Moody's has affirmed Coty Inc.’s Corporate Family Rating at Ba1.

Source: Investing.com