Back to top

Image: Bigstock

Why Is Estee Lauder (EL) Down 9.3% Since Last Earnings Report?

Read MoreHide Full Article

It has been about a month since the last earnings report for Estee Lauder (EL - Free Report) . Shares have lost about 9.3% 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 catalysts.

Estee Lauder Q2 Earnings & Sales Beat Estimates

Estee Lauder Companies Inc. reported second-quarter fiscal 2020 adjusted earnings per share of $2.11, beating the Zacks Consensus Estimate of $1.91. This reflected growth of 21% on adjusted as well as constant-currency basis. The upside was driven by a robust top-line performance.

Estee Lauder’s net sales of $4,624 million surpassed the Zacks Consensus Estimate of $4,364 million. Moreover, sales increased 15% year over year (16% at cc). Results gained from strong international market performance (especially Asia/Pacific region); strength in Skin Care and Fragrance categories, and solid sales of Estee Lauder and various other luxury brands. Also, the company’s travel retail and online channels performed well. Further, it gained from innovation and digital marketing.

Gross profit came in at $3,583 million, up 16%. Also, gross margin expanded 20 basis points (bps) to 77.5%.

However, operating income declined 66% year over year to $261 million. Operating income margin declined significantly to 5.6% from 19.3% reported in the year-ago period.

Product-Based Segment Results

Skin Care reported sales growth of 27% year over year (up 28% at cc) to $2,205 million, backed by strength in Estee Lauder and La Mer brands.

Makeup revenues were up 6% year over year (up 7% at cc) to $1,660 million, owing to solid sales of Estee Lauder, Tom Ford Beauty, La Mer and Bobbi Brown, partly negated by softness in Smashbox and BECCA.

In the Fragrance category, revenues improved 8% year over year (up 9% at cc) to $581 million driven by increased sales of Jo Malone London and Tom Ford Beauty.

Hair Care sales totaled $162 million that grew 5% year on year (also at cc). This can be attributed to strong sales of Aveda and Bumble and bumble.

Regional Results

Sales in the Americas increased 1% year over year (also at cc) to $1,226 million, driven by growth from Estee Lauder, Origins and La Mer. Further, the fragrance category increased in double digits in North America.

Sales in Europe, the Middle East & Africa region improved 18% (also at cc) to $2,079 million, backed by strong gains in the online, travel retail and specialty-multi channels.

In the Asia-Pacific region, sales rose 29% (up 30% at cc) to $1,319 million, with broad-based growth across most markets.

Other Financial Updates

Net cash flow used for operating activities during the first half of fiscal 2020 was $1.26 billion.

In a separate press release, management announced quarterly dividend of 48 cents for Class A and Class B shares. This is payable on Mar 16, 2020, to shareholders of record as of Feb 28.

Guidance

Estee Lauder expects solid demand for its premium products in fiscal 2020, wherein it anticipates to deliver above-industry growth.

However, the company expects coronavirus to impact global prestige beauty industry over the next few months. The company’s guidance includes expected impacts from the recent coronavirus outbreak.

For fiscal 2020, adjusted earnings are projected in the band of $5.60-$5.70 compared with prior view of $5.85-$5.93. At cc, earnings are projected to grow in the range of 9-11% compared with the previous guidance of 10-12% growth. Currency is likely to adversely impact the bottom line by almost 5 cents.

Net sales are expected to rise 6-8% compared with previous view of 7-8% for fiscal 2020. The company’s acquisition of Have & Be is expected to contribute around 1% to overall sales. Currency fluctuations are likely to have a 1% negative impact on the top line.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -25.64% due to these changes.

VGM Scores

At this time, Estee Lauder has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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 B. 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 this revision has been net zero. Notably, Estee Lauder has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


The Estee Lauder Companies Inc. (EL) - free report >>

Published in