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Estee Lauder (EL) Q3 Earnings, Sales Beat; FY16 View Up

Estee Lauder Companies Inc.’s EL earnings and revenues beat the Zacks Consensus Estimate in the third quarter of fiscal 2016.

Adjusted earnings of 73 cents per share went up 2.8% from 71 cents earned in the prior-year quarter backed by higher revenues. Earnings also beat the Zacks Consensus Estimate of 60 cents by 21.7%. Excluding currency impact and accelerated orders, earnings improved 5% year over year to 76 cents.

 

Revenues and Margins

Estee Lauder’s net sales of $2.66 billion beat the Zacks Consensus Estimate of $2.65 billion by 0.4% and also grew 3% from the prior-year quarter.

Sales grew in each of the geographic regions, except for the Asia/Pacific region, where it reported flat sales. All the product categories reported increased sales, except for skin care.

Gross profit increased 4% year over year to $2.15 billion. Gross margin rose 50 basis points (bps) to 81.0% as improved revenues offset the higher cost of sales. Adjusted operating income declined 1% to $399.2 million due to a 5% rise in operating expenses. Meanwhile, operating margin contracted 60 bps to 15%.

Segment Results

By Geography

Americas: Sales in the Americas remained flat year over year reflecting growth from most brands. New product introductions and expanded distribution contributed to double-digit gains. Higher sales in the makeup category were offset by lower skin care sales in the mid-tier departments. Sales in the company’s online business grew in double digits. On a constant currency basis, sales increased 2% backed by double-digit growth in sales from Canada and Latin America.

Europe, the Middle East & Africa: Sales increased 8% year over year as the company continued to outperform prestige beauty industry in most markets in the region. In travel retail, net sales increased on new launch initiatives, global airline passenger traffic growth and expanded distribution. However, foreign currency impacted sales by 3%, with the largest impact being on the U.K., South Africa, Russia and Nordic operations. On a constant currency basis, sales increased 11%.

Asia/Pacific: Sales in the region remained almost flat at $521.5 million, while it increased 5% from the year-ago quarter on a constant currency basis. Sales improved in all the countries, with double-digit growth in Korea, Japan, Australia and Taiwan. Foreign currency reduced sales by 5% with the largest impact being on China, Korea and Australia sales.

Fiscal 2016 Guidance

Though Estee Lauder expects continued growth opportunities in the global prestige beauty category, volatility and economic challenges are slowing the pace of market growth in Hong Kong, China and several emerging markets.

For fiscal 2016, Estee Lauder maintained net sales growth projection at 9% to 10% on a constant currency basis. Net sales, adjusting for the effect of accelerated retailer orders, are forecast to grow in the range of 7% to 8%, on a constant currency basis. The recent acquisitions are expected to contribute approximately 50 bps to the company’s overall sales growth.

Estee Lauder has revised its earnings guidance for the fiscal. The company expects adjusted earnings in the range of $3.09 to $3.14 per share for fiscal 2016, higher than the prior guidance of $3.07 to $3.12, including the negative impact from foreign currency and acquisitions. Acquisitions are estimated to dilute earnings by approximately 5 cents, while currency is expected to hurt earnings by 27 cents or 5%. The raised earnings guidance reflects a slight moderation in foreign currency translation.

On a constant currency basis and adjusting for the effect of accelerated retailer orders, earnings are expected to grow 10% to 12%.

Estee Lauder has a Zacks Rank #2 (Buy).

Other Stocks to Consider

Other favorably ranked stocks in the cosmetics sector include Nu Skin Enterprises Inc. NUS and Coty Inc. COTY with a Zacks Rank #2 (Buy). Another stock in the consumer discretionary sector worth considering is Central Garden & Pet Company CENT with a Zacks Rank #2.

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NU SKIN ENTERP (NUS): Free Stock Analysis Report
 
ESTEE LAUDER (EL): Free Stock Analysis Report
 
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COTY INC-A (COTY): Free Stock Analysis Report
 
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