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Estee Lauder Companies Inc.(EL - Analyst Report) posted third-quarter fiscal 2013 earnings of 45 cents per share (excluding restructuring charges), which climbed 19.0% from 38 cents in the prior-year quarter. The results were ahead of management’s guidance range of 28 cents to 32 cents. The reported earnings also exceeded the Zacks Consensus Estimate of 33 cents by 36.4%.

Profits during the quarter were aided by solid performance in the U.S. and the emerging markets.

Quarter in Detail

Net sales, excluding foreign currency translation, climbed 3% to $2.29 billion. The increase was in the lower end of the company’s guidance of 3%-4%. Sales growth was partly offset by soft results in Southern Europe and Korea due to the ongoing macroeconomic headwinds. The quarterly sales however, missed the Zacks Consensus Estimate of $2.33 billion.

The Hair Care product line was the strongest in the last quarter, growing 6% from the year-ago quarter. This was followed by Makeup and then Fragrance, which grew 5% and 1%, respectively. Skin Care product remained flat compared to prior-year quarter. Other products, with less than 1% of total revenue, declined 24%.

The gross margin expanded 160 basis points (bps) to 80.7% in the third quarter of fiscal 2013 owing to strong sales and cost control. Despite higher selling, general & administrative expenses, operating income margin increased 130 bps to 10.7% due to much higher restructuring charges.

Segment Details

Americas: Sales in the Americas rose 1.0% to $988.1 million. The sales increased on the back of the growth in the Company’s makeup artist brands and Aveda as well as a favorable year-over-year comparison due to a sales return in the prior year. On a constant currency basis, sales increased 2% in the region.

Europe, the Middle East & Africa: Overall sales in the region went up 3.0% both on a reported and constant currency basis to $847.9 million on the back of a double-digit growth in travel retail. Growth would have been stronger if not for the softness in Switzerland, France, Spain and the Balkans. However, the company witnessed sales growth in most of the other markets.

Asia/Pacific: Sales in the region improved 1.0% to $455.8 million, mainly owing to the increased demand for skin care products in Australia, Hongkong and Thailand. However, weakness in Korea partially offset the sales growth. On a constant currency basis, sales increased 3% in the region.

Other Financial Update

As of Mar 31, 2013, the company held $1.44 billion cash and cash equivalents compared to $1.32 billion as of Dec 31, 2012. Long-term debt remained flat at $1.33 billion compared to the end of the previous quarter.

The company has announced a dividend of 18 cents per share on the Company’s Class A and Class B Common Stock payable on May 31, 2013 to stockholders of record at the close of business on Feb 28, 2013.

Guidance

For fiscal 2013, earnings per share excluding restructuring charges are projected in the range of $2.56 to $2.61 compared to $2.51 to $2.0 as expected previously. Net sales are expected to increase between 6% in constant currency.

Recommendation

Headquartered in New York, Estee Lauder engages in the manufacture and sale of skin care, makeup, fragrance and hair care products and carries a Zacks Rank #3 (Hold). Avon Products Inc (AVP - Analyst Report) has a  Zacks Rank #2 (Buy), and is another stock worth considering.

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