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Estee Lauder (EL) Shares Rise on Q2 Earnings & Sales Beat

The Estee Lauder Companies Inc. EL reported robust second-quarter fiscal 2020 results, wherein the top line and the bottom line surpassed the respective Zacks Consensus Estimate, and increased year over year. Notably, this marked the company’s 22nd and 12th straight quarter of earnings and sales beat, respectively.

Strength in all the categories, Estee Lauder brand, travel retail, online channels and emerging markets fueled results. Also, the company concluded the acquisition of remaining stake in Have & Be Co., which aided its performance.
 
Shares of the company were up more than 5% in the pre-market trading session on Feb 6. In the past six months, shares of this Zacks Rank #3 (Hold) company have gained 10.2% against the industry’s decline of 12.3%.

Quarter in Detail

The company posted 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.

The Estee Lauder Companies Inc. Price, Consensus and EPS Surprise

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. The projection is below the Zacks Consensus Estimate of $5.94. 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.

3 Stocks to Consider

Helen of Troy Limited HELE presently has an expected long-term earnings growth rate of 9.3% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Procter & Gamble Company PG has a long-term earnings growth rate of 7.6% and carries a Zacks Rank #2 (Buy).

Ulta Beauty, Inc. ULTA has a long-term earnings growth rate of 16%. Currently, it carries a Zacks Rank #2.

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