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Estee Lauder (EL) Up 0.8% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Estee Lauder (EL - Free Report) . Shares have added about 0.8% in that time frame, underperforming 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 second-quarter fiscal 2024 results, with the top and the bottom line declining year over year. Quarterly net sales and earnings surpassed the Zacks Consensus Estimate. Quarterly results were hurt by softness in the Asia travel retail and the prestige beauty across mainland China. Also, disruptions in Israel and other parts of the Middle East remained a concern. Taking into account global macroeconomic volatility, management narrowed its fiscal 2024 net sales range while lowering its adjusted EPS outlook for fiscal 2024.
Quarter in Detail
The company posted adjusted earnings of 88 cents per share, surpassing the Zacks Consensus Estimate of 55 cents. However, the bottom line slumped 43% from $1.54 per share reported in the year-ago period. Adjusted EPS came in at 89 cents at constant currency.
Net sales of $4,280 million surpassed the Zacks Consensus Estimate of $4,190.9 million. However, the metric fell 7% from $4,621 million reported in the year-ago quarter. Organic net sales fell 8%, mainly due to softness in the Asia travel retail business and the overall prestige beauty in mainland China. The downside can also be attributed to business disruptions across Israel and other parts of the Middle East. These were somewhat offset by organic net sales growth in several markets across Asia/Pacific and Europe, the Middle East & Africa and Latin America.
The gross profit came in at $3,125 million, down 8% year over year. Gross margin came in at 73%, down from 73.6% reported in the year-ago quarter. The operating income came in at $574 million, up 3% from $556 million reported in the year-ago period. Operating income margin expanded to 13.4% from 12% reported in the year-ago quarter.
Skin Care’s sales were down 10% year over year to $2,173 million. Makeup revenues fell 8% year over year to $1,167 million. In the Fragrance category, revenues of $737 million were in line with the year-ago quarter’s figure. Hair Care sales totaled $173 million, down 5% year over year.
Sales in the Americas inched up 1% year over year at $1,242 million. Revenues in the EMEA region declined 13% to $1,589 million. In the Asia-Pacific region, sales fell 8% to $1,449 million.
Other Updates
The company exited the quarter with cash and cash equivalents of $3,939 million, long-term debt of $6,640 million and total equity of $5,712 million.
The net cash flow provided by operating activities for six months ended Dec 31, 2023, was $937 million. Capital expenditures during this time amounted to $527 million. The company returned $474 million to shareholders through dividend payouts.
Fiscal 2024 Outlook
For fiscal 2024, management is tightening its organic sales range on macroeconomic volatility in several areas. The company is lowering and tightening its adjusted EPS range to reflect the projected increase in the effective tax rate, somewhat offset by the favorable impact of foreign currency translations. The company is reaffirming the adjusted operating margin for fiscal 2024.
The company expects to return to double-digit organic net sales growth during the back half of fiscal 2024. It also anticipates witnessing a pressured gross margin in the fiscal third quarter and fiscal 2024. Operating margin in the second half of fiscal 2024 is likely to improve from the first half of the year.
For fiscal 2024, management now projects net sales and organic net sales in the range of a 1% decline and a 1% increase. The company had earlier expected a net sales decline of 2% to 1% increase. Organic net sales were earlier anticipated in the range of 1% decline and 2% growth in fiscal 2024.
Adjusted EPS is now expected in the band of $2.08-$2.23, suggesting growth from $3.46 reported in fiscal 2023. Adjusted EPS was earlier expected in the band of $2.17-$2.42, suggesting growth from $3.46 reported in fiscal 2023. Adjusted EPS is now expected to decrease 34-38% at cc, compared with a decline of 25-33% projected earlier. The company’s guidance assumes an annual effective tax rate of nearly 35%.
Q3 Guidance
For the third quarter of fiscal 2024, The Estee Lauder Companies anticipates reported net sales to grow 3 year over year. Organic net sales are likely to increase 4-6% in the quarter. Reported EPS are projected to be between 35 and 46 cents. Adjusted EPS, on a cc basis, are expected to be in the range of an 18% decline to 3% growth in the fiscal third 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 -42.52% due to these changes.
VGM Scores
At this time, Estee Lauder has an average Growth Score of C, though it is lagging a lot 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.
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Estee Lauder (EL) Up 0.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Estee Lauder (EL - Free Report) . Shares have added about 0.8% in that time frame, underperforming 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 Cuts FY24 Profit View Despite Q2 Earnings Beat
The Estee Lauder Companies reported second-quarter fiscal 2024 results, with the top and the bottom line declining year over year. Quarterly net sales and earnings surpassed the Zacks Consensus Estimate. Quarterly results were hurt by softness in the Asia travel retail and the prestige beauty across mainland China. Also, disruptions in Israel and other parts of the Middle East remained a concern. Taking into account global macroeconomic volatility, management narrowed its fiscal 2024 net sales range while lowering its adjusted EPS outlook for fiscal 2024.
Quarter in Detail
The company posted adjusted earnings of 88 cents per share, surpassing the Zacks Consensus Estimate of 55 cents. However, the bottom line slumped 43% from $1.54 per share reported in the year-ago period. Adjusted EPS came in at 89 cents at constant currency.
Net sales of $4,280 million surpassed the Zacks Consensus Estimate of $4,190.9 million. However, the metric fell 7% from $4,621 million reported in the year-ago quarter. Organic net sales fell 8%, mainly due to softness in the Asia travel retail business and the overall prestige beauty in mainland China. The downside can also be attributed to business disruptions across Israel and other parts of the Middle East. These were somewhat offset by organic net sales growth in several markets across Asia/Pacific and Europe, the Middle East & Africa and Latin America.
The gross profit came in at $3,125 million, down 8% year over year. Gross margin came in at 73%, down from 73.6% reported in the year-ago quarter. The operating income came in at $574 million, up 3% from $556 million reported in the year-ago period. Operating income margin expanded to 13.4% from 12% reported in the year-ago quarter.
Skin Care’s sales were down 10% year over year to $2,173 million. Makeup revenues fell 8% year over year to $1,167 million. In the Fragrance category, revenues of $737 million were in line with the year-ago quarter’s figure. Hair Care sales totaled $173 million, down 5% year over year.
Sales in the Americas inched up 1% year over year at $1,242 million. Revenues in the EMEA region declined 13% to $1,589 million. In the Asia-Pacific region, sales fell 8% to $1,449 million.
Other Updates
The company exited the quarter with cash and cash equivalents of $3,939 million, long-term debt of $6,640 million and total equity of $5,712 million.
The net cash flow provided by operating activities for six months ended Dec 31, 2023, was $937 million. Capital expenditures during this time amounted to $527 million. The company returned $474 million to shareholders through dividend payouts.
Fiscal 2024 Outlook
For fiscal 2024, management is tightening its organic sales range on macroeconomic volatility in several areas. The company is lowering and tightening its adjusted EPS range to reflect the projected increase in the effective tax rate, somewhat offset by the favorable impact of foreign currency translations. The company is reaffirming the adjusted operating margin for fiscal 2024.
The company expects to return to double-digit organic net sales growth during the back half of fiscal 2024. It also anticipates witnessing a pressured gross margin in the fiscal third quarter and fiscal 2024. Operating margin in the second half of fiscal 2024 is likely to improve from the first half of the year.
For fiscal 2024, management now projects net sales and organic net sales in the range of a 1% decline and a 1% increase. The company had earlier expected a net sales decline of 2% to 1% increase. Organic net sales were earlier anticipated in the range of 1% decline and 2% growth in fiscal 2024.
Adjusted EPS is now expected in the band of $2.08-$2.23, suggesting growth from $3.46 reported in fiscal 2023. Adjusted EPS was earlier expected in the band of $2.17-$2.42, suggesting growth from $3.46 reported in fiscal 2023. Adjusted EPS is now expected to decrease 34-38% at cc, compared with a decline of 25-33% projected earlier. The company’s guidance assumes an annual effective tax rate of nearly 35%.
Q3 Guidance
For the third quarter of fiscal 2024, The Estee Lauder Companies anticipates reported net sales to grow 3 year over year. Organic net sales are likely to increase 4-6% in the quarter. Reported EPS are projected to be between 35 and 46 cents. Adjusted EPS, on a cc basis, are expected to be in the range of an 18% decline to 3% growth in the fiscal third 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 -42.52% due to these changes.
VGM Scores
At this time, Estee Lauder has an average Growth Score of C, though it is lagging a lot 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.