Estee Lauder's Higher EPS Falls Shy
Estee Lauder Companies Inc. (NYSE:EL - News) posted second quarter 2012 quarterly earnings of $1.00 per share, which climbed 17% year over year but missed the Zacks Consensus Estimate of $1.01 by a penny.
Strong sales, especially in U.S., China, travel retail and online helped the company log higher profits. Overall, sales growth was particularly strong in travel retail and emerging markets, along with solid gains in many developed countries.
For the third quarter of 2012, diluted net earnings per common share, including charges associated with restructuring activities, are projected to be 27 cents to 31 cents, while excluding restructuring charges it is projected to be 28 cents to 32 cents. For fiscal 2012, earnings excluding restructuring charges are projected to be $2.16 to $2.23.
Net Sales
Net sales for the quarter grew 10.0% year-over-year to $2.74 billion from $2.49 billion in the prior-year quarter. Additionally, sales exceeded the Zacks Consensus Revenue Estimates of $2.7 billion.
The top-line growth was primarily driven by strong sales gains in major product categories across geographies, reflecting growth in higher-margin product launches and effective advertising spending. While the Travel and Retail segment boosted sales, emerging markets along with solid gains in many developed countries also pulled up the top-line results in the quarter.
For second quarter 2012, management expects net sales to grow between 4% and 5% in constant currency. The company expects foreign currency translation to negatively impact sales by approximately 1% to 2% versus the prior-year period.
For fiscal year 2012, net sales are forecasted to grow between 9% and 10% in constant currency. Foreign currency translation is now expected to negatively impact sales by less than 1% versus the prior-year period
Margins
Gross margin went up 160 basis points (bps) to 79.9% in the second quarter of 2011. Though operating expense margin declined 60 bps to 58.1% in the quarter, operating income margin also came down by 100 bps to 21.8%.
Segments
Skin Care product sales rose 13% to $1.2 billion, Makeup sales jumped 11.0% to $983.6 million, and Hair Care product sales went up 9.0% to $121.4 million. However fragrance product sales inched down1% to $441.1 million.
Management believes that on a product category basis, in constant currency, skin care and hair care are expected to score the highest increase in sales, followed by makeup and fragrance.
Geographies
Sales in the Americas rose 8.0% to $1.1 billion; in Europe, the Middle East & Africa sales surged 5% to $1,046.3 million, whereas in the Asia/Pacific region, sales soared 21.0% to $620.0 million.
Management expects that its geographic region net sales growth in constant currency is expected to be led by Europe, the Middle East & Africa, followed by Asia/Pacific and the Americas.
Other Financial Update
Net cash provided by operating activities was $610.2 million, compared with $508.0 million in the prior-year period. Estee lauder used operating cash flows primarily for the repurchase of shares of the company’s Class A Common Stock and capital expenditures.
In connection with its long-term strategic plan, as well as certain on-going initiatives, Estee Lauder realized $36 million in savings during the quarter. Additionally, it expects to realize savings between $25 million and $35 million in the third quarter of fiscal 2012, and between $115 million and $140 million during fiscal 2012.
Estee Lauder, which competes with Procter & Gamble Co. (NYSE:PG - News), holds a Zacks #3 Rank, which translates into a short-term Hold rating. We maintain a long term Outperform rating on Estee Lauder.
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