It has been about a month since the last earnings report for Estee Lauder (EL Quick QuoteEL - Free Report) . Shares have added about 0.7% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Estee Lauder due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

The Estee Lauder Companies Q3 Earnings Beat Estimates, Up Y/Y

The Estee Lauder Companies reported third-quarter fiscal 2021 results, with the top and the bottom line increasing year over year. Further, earnings surpassed the Zacks Consensus Estimate, while sales missed the same.

We note that, the company’s Skin Care and Fragrance categories witnessed impressive growth. Also, sales increased in all regions, led by double-digit growth in Asia/Pacific, where growth in mainland China accelerated. Additionally, the company’s online and Travel Retail businesses were strong. Notably, solid growth in brands like Estee Lauder, La Mer, Jo Malone London, Clinique and Tom Ford Beauty contributed to the upside.

Quarter in Detail

The company posted adjusted earnings of $1.62 per share, which surpassed the Zacks Consensus Estimate of $1.29. Also, adjusted earnings increased 92% year over year. On a constant-currency (cc) basis, adjusted earnings surged 88%.

Net sales of $3,864 million missed the Zacks Consensus Estimate of $3,924.3 million. Nevertheless, the metric increased 16% (up 13% at cc) from $3,345 million reported in the year-ago quarter. Net sales grew in all regions in which the company operates along with growth in most product categories. This reflects year over year rebound in various areas following brick-and-mortar store shut down amid the pandemic.

Gross profit came in at $2,925 million, up 17%. Also, gross margin increased to 75.7% from 75% reported in the year-ago quarter.

The company reported operating income of $616 million, up from $109 million reported in the year-ago quarter. Further, operating income margin increased significantly to 15.9% from 3.3% reported in the year-ago quarter.

Product-Based Segment Results

Skin Care’s sales were up 31% year over year (up 28% at cc) to $2,259 million. Makeup revenues declined 11% year over year (down 13% at cc) to $1,018 million. In the Fragrance category, revenues increased 30% year over year (up 27% at cc) to $454 million. Hair Care sales totaled $128 million, up 8% (up 6% at cc).

Regional Results

Sales in the Americas increased 3% year over year (up 4% at cc) to $916 million. Revenues in Europe, the Middle East & Africa region increased 12% (up 10% at cc) to $1,706 million. Lastly, in the Asia-Pacific region sales increased 35% (up 26% at cc) to $1,252 million.

Other Updates

The company exited the quarter with cash and cash equivalents of $6,399 million, long-term debt of $5,487 million and total equity of $5,558 million.

Net cash flow provided by operating activities for nine-months ended Mar 31, 2021, came in at $2,777 million. In March 2021, management resumed its Class A common stock buyback plans. Notably, the company repurchased nearly 1.2 million stocks worth $316 million till Mar 31.

In a separate press release, the company declared quarterly dividend of 53 cents per share on Class A and Class B shares. The dividend will be paid out on Jun 15, 2021 to shareholders of record as on May 28.

COVID-19 Update

While most brick-and-mortar retail stores that sell The Estee Lauder Companies’ products; (both company and customer operated) remained mostly open, especially in China and the United States during the third quarter, there were intermittent shutdowns in the rest of the world. Notably, many retail stores were temporarily shut at some point in the quarter across the U.K., Japan, Canada, Italy, Spain, France, Mexico and Brazil thanks to resurgence of coronavirus infections. Moreover, store traffic was significantly lower compared with pre-pandemic levels globally. Apart from these, international travel has been majorly restricted worldwide due to government regulations and consumer health concerns. Such restrictions have been negatively impacting consumer traffic in most travel retail locations. In the wake of the pandemic, the company is on track to undertake stringent cost-control measures.

Guidance

In fiscal 2021, the company projects net sales to increase in the band of 11-12%. Excluding the impact of currency, management expects net sales to improve 9-10% in the quarter. The company’s DECIEM buyout is likely to be negligible to overall sales growth. Further, adjusted earnings are anticipated to increase in the range of 45-47% on a cc basis in fiscal 2021.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -21.21% due to these changes.

VGM Scores

At this time, Estee Lauder has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Estee Lauder has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.