Back to top

Estee Lauder Grows on Buyouts, Dismal Hong Kong Sales Hurt

Read MoreHide Full Article

The Estée Lauder Companies Inc. (EL - Free Report) has been delivering better-than-expected earnings over the past several quarters backed by acquisitions, online business growth, and cost savings measures. In fact, strong yields from acquisitions drove its recently announced fourth-quarter 2017 results.

Let’s now look into some of the factors that have been impacting the performance of this company.

Strong Fourth Quarter Results

Both earnings and sales surged during the fourth quarter of fiscal 2017, which was released on Aug 18. The company posted adjusted earnings of 51 cents per share, beating the Zacks Consensus Estimate of 43 cents. Adjusted earnings also surged 21.4% year over year.

Estée Lauder’s net sales of $2.89 billion surpassed the Zacks Consensus Estimate of $2.85 million by 1.5%. Moreover, sales grew 9% from the prior-year quarter, primarily driven by acquisitions. Almost all the brands, geographic regions and product categories, except hair care reported sales growth in the quarter.

Immediately after posting an upbeat fourth-quarter result, the company hit a 52-week high of $106.45, eventually closing at $105.92. We also note that shares of this cosmetic giant surged 7.7% since its fourth-quarter earnings release. Shares of this cosmetic giant have been rising primarily on the back of growth initiatives. We observe that shares of Estée Lauder went up 15.9% compared with the industry’s decline of 13.9% over the past year.

Strategic Acquisitions Supports Growth

The acquisitions of BECCA and Too Faced (during the first quarter of 2017) has strengthened its fastest growing prestige portfolio and contributed approximately 3.5 percentage points of the reported sales growth during the fourth quarter. For fiscal 2017, these acquisitions contributed about 2 percentage points of the reported sales growth.

The recent investment made in DECIEM – a fast-growing multi-brand company – is expected to aid beauty sales in the forthcoming quarters. Earlier acquisitions including By Kilian, RODIN olio lusso and GLAMGLOW have also boosted Estée Lauder’s skin care portfolio apart from aiding it to bolster its international presence.

Online Business Acceleration & Other Factors

Estée Lauder has a strong e-Commerce business and the company expects it to be a major growth engine for the upcoming years as well. During fiscal 2017, global online sales of the company depicted a 33% growth to reach $1.3 billion. A number of brands of the company such as MAC, Tom Ford and La Mer witnessed strong online sales growth during the year. 

Additionally, under the Leading Beauty Forward initiative, the company continues to reallocate resources and reduce costs in order to drive beauty business. Estée Lauder also has a strong presence in emerging markets which insulates it from the macroeconomic headwinds in the matured markets. The company also gains from the rising demand for beauty products, particularly in the luxury arena and in makeup.

Bottom Line

Estée Lauder has remained cautious regarding slower retail growth in Hong Kong and unfavorable currency. It has also been witnessing a decline in retail traffic in U.S. brick-and-mortar stores, principally for MAC, Estée Lauder and Clinique.

Nevertheless, with a strong portfolio of brands, lucrative acquisitions and well-planned cost and resource allocation strategies, Estée Lauder is well placed in the beauty arena and is expected to easily overcome current challenges.

Estée Lauder currently carries a Zacks Rank #3 (Hold).

Looking for More Consumer Staples Stocks? Check These

Investors may consider better-ranked stocks such as McCormick & Company, Inc. (MKC - Free Report) , Nu Skin Enterprises, Inc. (NUS - Free Report) and Constellation Brands Inc (STZ - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

McCormick has an average positive earnings surprise of 4.4% over the trailing four quarters. It has a long-term earnings growth rate of 9.4%.

Nu Skin has an average positive earnings surprise of 10.8% over the trailing four quarters. It has a long-term earnings growth rate of 8.7%.

Constellation Brands has an average positive earnings surprise of 11.7% over the trailing four quarters. It has a long-term earnings growth rate of 18.2%.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>



More from Zacks Analyst Blog

You May Like