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Estee Lauder Exceeds, Revs In-Line

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Estee Lauder Companies Inc.(EL - Free Report) posted first quarter fiscal 2013 earnings of 79 cents per share (excluding restructuring charges), which climbed 12% from 70 cents in the prior-year quarter. The results were ahead of the management’s guidance range of 71 cents to 77 cents. The reported earnings also inched past the Zacks Consensus Estimate of 77 cents.

Profits during the quarter were aided by solid performance in North America and China. The company’s cost management was strong in the quarter.

Quarter in Detail

Net sales, excluding foreign currency translation, climbed 6% to $2.55 billion. The increase was ahead of the company’s guidance of 5%-7%. The strong sales were driven by solid performance in U.S. and in emerging markets. The quarterly sales were in-line with the Zacks Consensus Estimate.

Adjusted gross margin expanded 50 basis points (bps) to 78.9% in the first quarter of fiscal 2013 owing to strong sales. Despite higher selling, general & administrative expenses, adjusted operating income margin increased 140 bps to 18.9%.

Segment Details

Americas: Sales in the Americas rose 7.0% to $1.2 billion. The sales increased on the heels of successful product innovations, particularly in U.S. The company’s heritage and makeup artist brands, as well as increased sales in each of the company’s product categories also contributed to the growth. On a constant currency basis, sales increased 8% in the region.

Europe, the Middle East & Africa: Overall sales in the region declined 4.0% to $824.9 million, mainly due to economic slowdown in some Western European countries. However, the company generated sales growth in most of the other markets. On a constant currency basis, sales increased 2% in the region.

Asia/Pacific: Sales in the region improved 6.0% to $542.5 million, mainly owing to solid growth in China, Hongkong and Thailand in skin care category. However, weakness in Korea partially offset the sales growth. On a constant currency basis, sales increased 7% in the region.

Other Financial Update

Estee Lauder’s board increased the annual dividend by 37% to 72 cents per share, over the previous annual rate of 52.5 cents per share. The annual dividend of 72 cents will be payable on December 17, 2012 to stockholders of record as of November 30, 2012. The first quarterly dividend of 18 cents per share is expected to declare in February and payable in March 2013.

Additionally, the company’s board has authorized the repurchase of up to another 40 million shares, thus increasing the total authorization to 216 million shares. With this, approximately 164 million have been repurchased to date, with a total of approximately 387 million shares outstanding.

In connection with the long-term strategic plan and certain ongoing initiatives, Estee Lauder realized savings of $17 million during the quarter.


For the second quarter of fiscal 2013, earnings per share excluding restructuring charges are projected in the range of 97 cents to $1.03 per share. Net sales are expected to increase between 6% and 7% in constant currency.

The company expects foreign currency to negatively impact sales by approximately 1.5% versus the prior-year period. The company also expects to realize savings between $15 million and $20 million from ongoing initiatives in the second quarter of fiscal 2013.

For fiscal 2013, the company has increased the lower end of the earnings guidance (excluding restructuring charges and early debt extinguishment) in the range of $2.47 to $2.56 per share, as compared to $2.44 to $2.56 guidance range forecasted earlier. Net sales in constant currency are expected to increase between 6% and 7% as compared to 6% and 8%, forecasted previously.

Foreign currency is expected to negatively impact sales by approximately 2% versus the prior year. The company also expects to realize savings between $50 million and $75 million from ongoing initiatives in fiscal year 2013.

Estee Lauder, which competes with Procter & Gamble Co. (PG - Free Report) , holds a Zacks #3 Rank (short term Hold rating). We maintain a long-term Neutral recommendation on Estee Lauder.

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