A month has gone by since the last earnings report for Estee Lauder (EL Quick QuoteEL - Free Report) . Shares have lost about 2.7% in that time frame, outperforming the S&P 500.

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

The Estee Lauder Companies Beats on Earnings in Q3

The Estee Lauder Companies reported third-quarter fiscal 2022 results, with the top and the bottom line increasing year over year. Sales missed the Zacks Consensus Estimate while earnings surpassed the same. Results benefited from organic growth across all categories, driven by Fragrance’s impressive performance worldwide and makeup in western markets. The company witnessed robust consumer demand despite an inflationary environment. Pandemic-induced restrictions in the Asia/Pacific region were a headwind.

Management revised its fiscal 2022 outlook to show impressive year-to-date performance coupled with added headwinds that are affecting the fiscal fourth-quarter view. These headwinds include pandemic-induced restrictions in China, which are impacting travel retail business. Also, the invasion of Ukraine is a major hurdle.

Quarter in Detail

The company posted adjusted earnings of $1.90 per share, which surpassed the Zacks Consensus Estimate of $1.66. The bottom line surged 17% (up 18% at cc) year over year.

Net sales of $4,245 million missed the Zacks Consensus Estimate of $4,323.1 million. The metric increased 10% (up 11% at cc) from $3,864 million reported in the year-ago quarter. Organic net sales grew 9% in the quarter. Management highlighted that net sales grew in every product category, mainly reflecting the continued rebound in brick-and-mortar retail stores, fueled by double-digit growth in The Americas and Europe, the Middle East & Africa (EMEA) region. Strength in the company’s global online business was an upside. The company witnessed increased pandemic-inflicted restrictions across China from the middle of March 2022. Such temporary restrictions caused softness in consumer traffic and travel, among other downsides.

Gross profit came in at $3,251 million, up 11% year over year. The gross margin expanded to 76.6% from 75.7% reported in the year-ago quarter.

The company reported an operating income of $738 million, up from $616 million reported in the year-ago quarter. Operating income margin came in at 17.4%, up from 15.9% reported in the year-ago quarter.

Product-Based Segment Results

Skin Care’s sales were up 6% year over year (up 7% at cc) to $2,395 million. Makeup revenues increased 9% year over year (up 11% at cc) to $1,114 million. In the Fragrance category, revenues surged 28% year over year (up 31% at cc) to $579 million. Hair Care sales totaled $147 million, up 15% (up 17% at cc).

Regional Results

Sales in the Americas rose 15% year over year (up 14% at cc) to $1,053 million. Revenues in Europe, the Middle East & Africa region increased 17% (up 19% at cc) to $1,990 million. In the Asia-Pacific region, sales declined 4% (down 3% at cc) to $1,203 million.

Other Updates

The company exited the quarter with cash and cash equivalents of $3,836 million, long-term debt of $5,188 million and total equity of $6,186 million. Net cash flow provided by operating activities for nine months ended Mar 31, 2022, came in at $1,969 million. The company returned $2.6 billion in cash to shareholders through dividend payouts and share repurchases.

In a separate press release, the company declared a quarterly dividend of 60 cents per share on Class A and Class B shares. The dividend will be paid out on Jun 15, 2022, to shareholders of record as of May 31.

COVID-19 Update

Management highlighted that COVID-19 continued affecting the company’s operating environment worldwide, mainly affecting retail traffic, travel, supply chain, inventory levels and other logistics in the quarter under review. The resurgence of coronavirus cases across several Chinese provinces resulted in restrictions during the end of the fiscal third quarter. Retail traffic, travel and distribution capabilities were temporarily restricted.

Guidance

For fiscal 2022, the company now projects reported net sales to increase in the band of 7-9% year over year. Earlier, the metric was expected to increase 13-16% year over year. Organic net sales are now anticipated to increase in the range of 5-7% year over year. The metric was earlier expected to grow in the band of 10-13% year over year.

The company expects adjusted EPS between $7.05 and $7.15 for fiscal 2022, compared with the previous range of $7.43-$7.58. Adjusted earnings are now anticipated to increase 8-10% at cc in fiscal 2022. Earlier, the metric was projected to increase 14-17% at cc.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -64.67% due to these changes.

VGM Scores

Currently, Estee Lauder has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, 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 F. 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.