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Estee Lauder Beats but Narrows View

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Estee Lauder Companies Inc. (EL - Free Report) posted first-quarter fiscal 2014 earnings of 76 cents per share (excluding restructuring charges). The earnings exceeded the Zacks Consensus Estimate of 74 cents by 2.7% and management’s guidance of a range of 67 cents to 71 cents. However, earnings were down 3.7% from 79 cents reported in the prior year quarter due to lower operating income.

Quarter in Detail

Net sales climbed 6% to $2.67 billion on the back of higher sales in most of the geographic regions and major product categories. However, quarterly sales lagged the Zacks Consensus Estimate of $2.69 billion.

In the quarter under review, the Hair Care category was strongest with 10% growth. Fragrance product line followed with 6% growth over the year-ago quarter. Makeup and Skin Care followed next with 4% and 5% growth, respectively. Other products, with less than 1% of total revenue, declined 23%.

While gross margin inflated 80 basis points (bps) to 79.7% in the first quarter of fiscal 2014 owing to higher sales, higher selling, general & administrative expenses led to operating income margin contraction of 210 bps to 16.8%.

Segment Details

Americas: Sales in the Americas rose 2.0% to $1.2 billion. Sales increased on the back of growth in the company's makeup artist, hair care and designer fragrances brands. Operating income declined 9% to $156.0 million due to higher marketing spend to back new launches..

Europe, the Middle East & Africa: Double-digit growth in travel retail drove overall sales for this segment. Sales grew 7% on a constant currency basis to $891.2 million. Operating income declined 8% to $180.8 million on the back of a strong travel retail business.

Asia/Pacific: Sales in the region improved 7% to $581.4 million, backed by double digit sales growth in China, Hongkong and Taiwan. However, weakness in Korea partially offset the sales growth. Operating Income increased 1% to $113.9 million due to China, Taiwan and Hong Kong, being partially offset by lower operating results in Japan and Vietnam.

Other Financial Update

As of Jun 30, 2013, the company held $1.32 billion cash and cash equivalents compared to $1.49 billion as of Jun 30, 2013. Long-term debt remained flat at $1.32 billion compared to the end of the previous quarter.

EL has announced a dividend of 20 cents per share payable on Dec 16, 2013 to stockholders of record at the close of business on Nov 29, 2013.


Following better than expected results in the first quarter, for fiscal 2014, EL raised it earnings per share outlook to the range of $2.80 to $2.87 compared to the previously announced range of $2.74 to $2.87. EL, however, maintained its sales guidance of 6%–8% in constant currency.

For the second quarter of fiscal 2014, earnings per share excluding restructuring charges are projected in the range of 99 cents to $1.04. Net sales are expected to increase between 3%–5% in constant currency, negatively impacted by foreign currency translation of 1%. Estee Lauder expects to augment its advertising spend to back its new product launches.


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). Other stocks in the consumer staples sector worth considering are NU Skin Enterprises Inc. (NUS - Free Report) and Reckitt Benckiser Group Plc. (RBGLY - Free Report) carrying a Zacks Rank #1 (Strong Buy) and Elizabeth Arden Inc. carrying a Zacks Rank #2 (Buy).

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