Estee Lauder (EL) Earnings Beat, Sales Miss Estimates In Q1

Estee Lauder Companies Inc (NYSE:EL) posted mixed first-quarter fiscal 2017 results, wherein earnings beat Zacks Consensus Estimates while revenue missed the same.

Adjusted earnings of 84 cents per share beat the Zacks Consensus Estimate of 79 cents and improved from the prior-year quarter earnings by 2.4%. Excluding currency impact and accelerated orders, earnings improved 5% year over year to 86 cents.

Revenues and Margins

Estee Lauder’s net sales of $2.87 billion missed the Zacks Consensus Estimate of $2.89 billion by 0.7%. However, sales grew 1% from the prior-year quarter.

Sales grew in each of the categories, except for the Skin Care, where it reported flat sales.

Gross profit remained flat at $2.27 billion. Gross margin shrank 40 basis points (bps) to 79.2% as improved revenues was offset by higher cost of sales. Operating income declined 8% to $418 million due to higher operating expenses. Operating margin contracted 140 bps to 14.6%.

Segment Results

By Geography

Americas: Sales in the Americas slipped 2% year over year due to decline in retail traffic in the U.S. mid-tier department stores. Further, lower tourism adversely affected sales in certain U.S. MAC freestanding stores.

Europe, the Middle East & Africa: Sales surged 7% year over year backed by higher sales in Central Europe, Italy, Israel, Spain and Balkans along with a solid growth in Germany. In travel retail, net sales increased on new launch initiatives, global airline passenger traffic growth and expanded distribution. Including effect of foreign currency, sales gained 2% year over year.

Asia/Pacific: Sales in the region climbed 7% (5% on a constant currency basis) backed by double-digit sales growth in Korea, Philippines, New Zealand, Australia, Japan and China.

Fiscal 2017 Guidance

Estée Lauder expects continued growth opportunities in the global prestige beauty category, which is expected to grow 4–5% during the year. However, volatility and economic challenges are slowing the pace of market growth in Hong Kong, France and several emerging markets.

For fiscal 2016, Estée Lauder maintained net sales growth projection at 6–7% on a constant currency basis. Foreign currency is expected to impact sales negatively by 1%.

The company expects adjusted earnings in the range of $3.38–$3.44 per share for fiscal 2017. On a constant currency basis and after adjusting for the effect of accelerated retailer orders, earnings are expected to grow 8–10%.

Estee Lauder has a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the consumer staples sector include

Inter Parfums Inc. (NASDAQ:IPAR) has a Zacks Rank #2 (Buy) and long-term earnings growth rate of 15%.

Avon Products Inc. (NYSE:AVP) sports a Zacks Rank #1 (Strong Buy) and an expected growth rate of 5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Con Agra Foods (NYSE:CAG) also has a Zacks Rank #2 and an expected earnings growth rate of 8.82%.

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