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We recently reiterated our Neutral recommendation on Estee Lauder Companies (EL - Analyst Report). The company posted third-quarter fiscal 2012 earnings of 38 cents per share, exceeding the Zacks Consensus Estimate of 33 cents by 8.6% as well as the prior-year earnings of 35 cents by 15.2%.

The better-than-expected third quarter results came on the back of strong sales in all product categories across every geographic division. New product innovation as well as high quality and personalized customer service also boosted profits during the period.

Estee Lauder has performed consistently well in developed regions despite severe economic challenges. Moreover, the company reported positive sales in the premium brands as consumers preferred to spend more for high-quality products.

With new product launches and a loyal customer base, Skin care and Fragrance continued to be the basic pillar of the company’s sales growth. The company maintained an aggressive marketing strategy that consistently helped it to gain market share of the cosmetics industry.

The company is fast expanding into emerging markets like Brazil, China and Israel. With the economic environment being sluggish in the developed nations, demand has remained relatively stable for companies that are more exposed to developing countries, especially the fast-growing emerging markets.

However, the company’s close competitor Elizabeth Arden Inc. (RDEN - Snapshot Report) has a strong foothold in the "musician perfume" market, and many of its brands are marketed and endorsed by popular artists. A new generation might be more attracted by the celebrity power of Elizabeth Arden's offerings, which may pose a risk to Estee Lauder’s market share. 

The soft pace of the U.S. economic recovery leading to slow job growth, high interest rates and still tightened credit availability continues to hurt costumer discretionary spending, thereby impacting the growth prospects of the company.

Based in New York, Estee Lauder is one of the world's leading manufacturers and marketers of skin care, makeup, fragrance, and hair care products. Currently, Estee Lauder carries a Zacks #3 Rank (short-term Hold rating).

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