PG Procter and Gamble Co

Coty Inc. said the "massive distraction" involved in integrating the $11.6 billion beauty business it acquired from Procter & Gamble Co. led to an unexpected drop in sales, sending its shares sharply lower.

The New York-based company Wednesday reported a 2.9% decline in revenue for the quarter ended Sept. 30, with sales of fragrances and color cosmetics both down 10%. The categories comprise the bulk of Coty's $1.1 revenue for the quarter.

Analysts fretted that the sales decline reflects more of a fundamental change in the business climate than Coty executives acknowledged. "Help us have confidence that this really negative trend isn't going to persist throughout the year," Citigroup analyst Wendy Nicholson said in a call to discuss the results.

Coty Chairman Bart Becht said the company is going through a transition bringing in the P&G brands but that now that the integration with the new businesses is mostly complete it can better focus on its operations. The company said its long-terms earnings forecast remains intact.

"I think that's what you expected when you have a massive distraction happening," Mr. Becht said. "At the same time, we believe the longer-term outlook remains the same."

Shares of Coty fell 9.6% to $19.80 in afternoon trading, in what would be its biggest one day fall.

The New York company has been aggressively hunting deals to improve its business and grow its footprint. The P&G beauty business came with labels such as CoverGirl makeup, Gucci fragrances and Clairol hair dye.

In addition to the P&G deal, the company in October agreed to buy hairstyle appliance maker Ghd for about $510 million. Last year, it completed its purchase of Bourjois cosmetics from Chanel and bought several Brazilian skin-care brands and struck a deal to buy digital marketing firm Beamly in a bid to ramp up its e-commerce business.

Coty paid $1 billion less for the P&G beauty brands than initially disclosed due to an "insistence" by P&G that the deal price be tied in part to Coty's share price, Mr. Becht said in an interview. Coty agreed to pay $12.5 billion for the business when it struck the deal in July 2015.

Coty shares rose between the time the deal was struck and its closing, which pushed the final deal price down. "We knew what our plans were and we had confidence that our share price might increase further," he said. "We got a very nice discount."

P&G couldn't immediately be reached for comment. Company executives have said previously that, despite the lower price, P&G got a good price for the business.

For the quarter, Coty posted no profit, compared with net income of $125.7 million in the same period a year ago.

Write to Sharon Terlep at sharon.terlep@wsj.com

(END) Dow Jones Newswires

November 09, 2016 14:55 ET (19:55 GMT)

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