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Why Is Estee Lauder (EL) Up 11.6% Since Last Earnings Report?
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It has been about a month since the last earnings report for Estee Lauder (EL - Free Report) . Shares have added about 11.6% in that time frame, outperforming 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 reported first-quarter fiscal 2024 results, with the top and the bottom line declining year over year. Quarterly net sales came in line with the Zacks Consensus Estimate while earnings beat the same. Quarterly results were hurt by softness in the Asia travel retail and slower-than-anticipated recovery in the prestige beauty across mainland China. Taking into account slower-than-anticipated net sales and margin recovery stemming from incremental external headwinds, management is lowering its fiscal 2024 guidance.
Quarter in Detail
The company posted adjusted earnings of 11 cents per share against the Zacks Consensus Estimate of a loss of 22 cents. However, the bottom line slumped 92% from $1.37 per share reported in the year-ago period. Adjusted EPS came in at 12 cents at constant currency.
Net sales of $3,518 million were in line with the Zacks Consensus Estimate. The metric fell 10% from $3,930 million reported in the year-ago quarter. Organic net sales fell 11%, mainly due to softness in the Asia travel retail business and slower-than-anticipated recovery in the overall prestige beauty in mainland China. These were somewhat offset by organic net sales growth across the United States, several markets in Asia/Pacific and almost every market in Europe, the Middle East & Africa (EMEA). Organic net sales in the Fragrance and Makeup grew while the same declined in the Skin Care category.
Skin Care’s sales were down 22% year over year to $1,638 million. Makeup revenues inched up 1% year over year to $1,063 million. In the Fragrance category, revenues were up 5% at $637 million. Hair Care sales totaled $148 million, down 6%. Sales in the Americas grew 8% year over year at $1,208 million. Revenues in the EMEA region declined 26% to $1,252 million. In the Asia-Pacific region, sales fell 6% to $1,058 million.
The gross profit came in at $2,448 million, down 16% year over year. Gross margin came in at 69.6%, down from 74% reported in the year-ago quarter. The operating income came in at $98 million, down 85% from $661 million reported in the year-ago period. Operating income margin contracted to 2.8% from 16.8% reported in the year-ago quarter.
Other Updates
The company exited the quarter with cash and cash equivalents of $3,090 million, long-term debt of $7,088 million and total equity of $5,342 million. Net cash flow used by operating activities for three months ended Sep 30, 2023, was $408 million. Capital expenditures during this time amounted to $295 million. The company returned $239 million to shareholders through dividend payouts.
The company is on track with the profit recovery plan to rebuild its profit margins for fiscal years 2025 and 2026. This plan will target key areas of the company’s business to enhance gross margin and reduce some operating expenses.
Outlook
In mainland China, The Estee Lauder Companies is witnessing a slower growth rate in the overall prestige beauty. Thanks to this, management is lowering its fiscal 2024 expectations for mainland China and Asia travel retail. Yet, management anticipates resetting retailer inventory in Asia travel retail by the end of the third quarter of fiscal 2024. Another factor dampening the company’s outlook is the potential risks of more business disruptions across Israel and other regions of the Middle East. In addition, EL remains exposed to the dangers of unfavorable currency headwinds.
That said, management envisions seeing a return to net sales growth in the back half of fiscal 2024. It also expects to see annual gross margin expansion mainly on strategic price increases, reduced discounts and obsolescence charges. The company also anticipates seeing progressive operating margin improvement in the second half of fiscal 2024.
For fiscal 2024, management now projects net sales in the range of a 2% decline and a 1% increase, including an unfavorable currency impact of 1%. The view also takes into account a 1% headwind of the potential risks of further business disruptions across Israel and other areas of the Middle East. The company had earlier expected net sales to increase 3-5%.
Organic net sales growth is now anticipated in the range of 1% decline and 2% growth in fiscal 2024. Organic net sales growth was earlier anticipated in the range of 6-8%.
Adjusted EPS is now expected in the band of $2.17-$2.42, suggesting growth from $3.46 reported in fiscal 2023. Currency headwinds are likely to affect net EPS by nearly 16 cents. Adjusted EPS was earlier anticipated in the band of $3.50-$3.75, with currency headwinds of nearly 11 cents. Adjusted EPS is now expected to decline 25-33% at cc, against growth of 4-12% projected earlier. The company’s guidance assumes an annual effective tax rate of nearly 28%.
For the second quarter of fiscal 2024, The Estee Lauder Companies anticipates reported net sales to decline 9 year over year. Organic net sales are likely to drop 8-10% in the quarter. Reported EPS are projected to be between 47 and 57 cents. Adjusted EPS on a cc basis is expected to decrease 60-66% in the fiscal second quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -57.25% due to these changes.
VGM Scores
At this time, Estee Lauder has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile 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. It's no surprise Estee Lauder has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Why Is Estee Lauder (EL) Up 11.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Estee Lauder (EL - Free Report) . Shares have added about 11.6% in that time frame, outperforming 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.
Estee Lauder Lowers FY24 View Despite Q1 Earnings Beat
The Estee Lauder Companies reported first-quarter fiscal 2024 results, with the top and the bottom line declining year over year. Quarterly net sales came in line with the Zacks Consensus Estimate while earnings beat the same. Quarterly results were hurt by softness in the Asia travel retail and slower-than-anticipated recovery in the prestige beauty across mainland China. Taking into account slower-than-anticipated net sales and margin recovery stemming from incremental external headwinds, management is lowering its fiscal 2024 guidance.
Quarter in Detail
The company posted adjusted earnings of 11 cents per share against the Zacks Consensus Estimate of a loss of 22 cents. However, the bottom line slumped 92% from $1.37 per share reported in the year-ago period. Adjusted EPS came in at 12 cents at constant currency.
Net sales of $3,518 million were in line with the Zacks Consensus Estimate. The metric fell 10% from $3,930 million reported in the year-ago quarter. Organic net sales fell 11%, mainly due to softness in the Asia travel retail business and slower-than-anticipated recovery in the overall prestige beauty in mainland China. These were somewhat offset by organic net sales growth across the United States, several markets in Asia/Pacific and almost every market in Europe, the Middle East & Africa (EMEA). Organic net sales in the Fragrance and Makeup grew while the same declined in the Skin Care category.
Skin Care’s sales were down 22% year over year to $1,638 million. Makeup revenues inched up 1% year over year to $1,063 million. In the Fragrance category, revenues were up 5% at $637 million. Hair Care sales totaled $148 million, down 6%. Sales in the Americas grew 8% year over year at $1,208 million. Revenues in the EMEA region declined 26% to $1,252 million. In the Asia-Pacific region, sales fell 6% to $1,058 million.
The gross profit came in at $2,448 million, down 16% year over year. Gross margin came in at 69.6%, down from 74% reported in the year-ago quarter. The operating income came in at $98 million, down 85% from $661 million reported in the year-ago period. Operating income margin contracted to 2.8% from 16.8% reported in the year-ago quarter.
Other Updates
The company exited the quarter with cash and cash equivalents of $3,090 million, long-term debt of $7,088 million and total equity of $5,342 million. Net cash flow used by operating activities for three months ended Sep 30, 2023, was $408 million. Capital expenditures during this time amounted to $295 million. The company returned $239 million to shareholders through dividend payouts.
The company is on track with the profit recovery plan to rebuild its profit margins for fiscal years 2025 and 2026. This plan will target key areas of the company’s business to enhance gross margin and reduce some operating expenses.
Outlook
In mainland China, The Estee Lauder Companies is witnessing a slower growth rate in the overall prestige beauty. Thanks to this, management is lowering its fiscal 2024 expectations for mainland China and Asia travel retail. Yet, management anticipates resetting retailer inventory in Asia travel retail by the end of the third quarter of fiscal 2024. Another factor dampening the company’s outlook is the potential risks of more business disruptions across Israel and other regions of the Middle East. In addition, EL remains exposed to the dangers of unfavorable currency headwinds.
That said, management envisions seeing a return to net sales growth in the back half of fiscal 2024. It also expects to see annual gross margin expansion mainly on strategic price increases, reduced discounts and obsolescence charges. The company also anticipates seeing progressive operating margin improvement in the second half of fiscal 2024.
For fiscal 2024, management now projects net sales in the range of a 2% decline and a 1% increase, including an unfavorable currency impact of 1%. The view also takes into account a 1% headwind of the potential risks of further business disruptions across Israel and other areas of the Middle East. The company had earlier expected net sales to increase 3-5%.
Organic net sales growth is now anticipated in the range of 1% decline and 2% growth in fiscal 2024. Organic net sales growth was earlier anticipated in the range of 6-8%.
Adjusted EPS is now expected in the band of $2.17-$2.42, suggesting growth from $3.46 reported in fiscal 2023. Currency headwinds are likely to affect net EPS by nearly 16 cents. Adjusted EPS was earlier anticipated in the band of $3.50-$3.75, with currency headwinds of nearly 11 cents. Adjusted EPS is now expected to decline 25-33% at cc, against growth of 4-12% projected earlier. The company’s guidance assumes an annual effective tax rate of nearly 28%.
For the second quarter of fiscal 2024, The Estee Lauder Companies anticipates reported net sales to decline 9 year over year. Organic net sales are likely to drop 8-10% in the quarter. Reported EPS are projected to be between 47 and 57 cents. Adjusted EPS on a cc basis is expected to decrease 60-66% in the fiscal second quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -57.25% due to these changes.
VGM Scores
At this time, Estee Lauder has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile 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. It's no surprise Estee Lauder has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.