Estee Lauder (EL) Tops Q4 Earnings, Sales On Acquisitions

Estee Lauder Companies Inc. (NYSE:EL) continues to impress with better-than-expected earnings for 12 straight quarters, with fourth-quarter fiscal 2017 being no exception. The cosmetic giant also posted revenues which beat the Zacks Consensus Estimate. Shares are also up more than 1% in the pre-market trading.

In fact, if we look in to the price performance of the Zacks Rank #2 (Buy) company over the last six months, we note that the stock price has rallied 15.7%, outperforming the industry’s gain of 8.0%. Also, the stock fares better in comparison to the broader Consumer Staple sector, which grew just 3.4% in the said time frame.

Quarter in Detail

The company posted adjusted earnings per share of 51 cents, beating the Zacks Consensus Estimate of 43 cents by 18.6%. Adjusted earnings also surged 21.4% year over year from 42 cents. Excluding currency impact, adjusted earnings improved 25% year over year to 52 cents.

Estee Lauder’s net sales of $2.89 billion surpassed the Zacks Consensus Estimate of $2.85 million by 1.5%. Moreover, sales grew 9% from the prior-year quarter, driven by acquisitions of BECCA and Too Faced, which contributed about 3.5 percentage points of the reported sales growth. Almost all the brands, geographic regions and product categories, except hair care reported sales growth in the quarter. Sales were also fueled by innovative products and double-digit growth in several developed and emerging markets, particularly China. The company also generated double-digit gains in its travel retail, online and specialty-multi channels. On a constant currency basis, net sales increased 11% year over year.

Gross profit increased 7% to $2.3 billion, but gross margin shrank 190 basis points (bps) to 78.8% as improved revenues were offset by higher cost of sales.

Fiscal 2017 Results

In fiscal 2017, the company posted adjusted earnings per share of $3.47 per share, beating the Zacks Consensus Estimate of $3.40 by 2.1%. Adjusted earnings also grew 8% year over year from $3.22 per share and were within the company’s guidance range of $3.32-$3.37 per share. Excluding currency impact, adjusted earnings improved 11% year over year to $3.59, higher than the company’s guided range of 8-9% growth.

Estee Lauder’s net sales of $11.82 billion surpassed the Zacks Consensus Estimate of $11.79 million by 0.3%. Moreover, sales grew 5% from the prior-year, which is at the top end of the management’s guided range of 4-5%, driven by acquisitions of BECCA and Too Faced, which contributed about 2 percentage points of the reported sales growth. On a constant currency basis, net sales increased 7% year over year, which is at the top end of the management’s guided range of 6-7%.

Segment Results

On the basis of product category, Skin Care reported sales growth of 3% year over year on a constant currency basis in fiscal 2017 driven by double-digit increase from La Mer. Makeup revenues were up 9% while Fragrance reported revenue growth of 13% driven by acquisitions. Meanwhile, Hair Care sales declined 2% in the quarter due to a difficult comparison with several product launches in the prior year.

On the basis of geographical regions, sales in the Americas increased 2% year over year on a constant currency basis driven by recent buyouts of Too Faced, BECCA and By Kilian. Sales in the company’s online and specialty-multi channels grew strong double digits. Sales in Europe, the Middle East & Africa region improved 10% year over year, with many markets posting double-digit increases, led by Russia, Italy, the Balkans, Israel and India. In travel retail, net sales grew double-digits across most brands on account of new products launches, increase in global airline passenger traffic and expanded distribution. In Asia/Pacific, sales climbed 9% on the back of double-digit growth in China. The company witnessed strong sales growth in Japan, Korea and Taiwan, whereas the company’s business in Hong Kong continued to stabilize and returned to growth in the fourth quarter.

Fiscal 2018 Guidance

Estée Lauder expects continued growth opportunities in the global prestige beauty industry, which is anticipated to grow 4-5% during the year. However, currency volatility and economic challenges, terrorism and social and political issues are affecting consumer behavior in few countries. The company’s annual growth has consistently outpaced global prestige beauty. Despite these global issues, it is expected to continue to grow at least two percentage points ahead of the industry for the fiscal year 2018.

For fiscal 2018, Estée Lauder expects net sales growth projection at 8-9%. Foreign currency is expected to positively impact sales by 1%. On a constant currency basis, net sales are expected to grow in the range of 7-8%. The company expects adjusted earnings in the range of $3.87-$3.94 per share for fiscal 2018. The Zacks Consensus estimate for fiscal 2018 is however currently pegged at $3.78 per share. On a constant currency basis, adjusted earnings are expected to grow 9-11%.

The company’s acquisitions of Too Faced and BECCA are forecasted to contribute approximately 2 percentage points to the company’s overall sales growth and are estimated to be accretive to earnings per share by approximately 1 cent.

First-Quarter Fiscal 2018 Guidance

For the first quarter, Estée Lauder forecasts net sales growth projection at 9-10%, on both reported and on a constant currency basis. The company expects adjusted earnings in the range of 94-97 cents per share for the quarter, which marks an increase of 12% to 15% over the prior-year earnings of 84 cents. The Zacks Consensus estimate for the quarter is currently pegged at 93 per share.

Currency is not expected to impact the first quarter. However, the company’s acquisitions of Too Faced and BECCA are forecasted to contribute approximately 4 percentage points to the company’s overall sales growth and are estimated to be accretive to earnings per share by approximately 1 cent.

Do Consumer Staples Stocks Interest You? Check These

Investors may consider some better-ranked stocks from the same sector such as Inter Parfums, Inc. (NASDAQ:IPAR) , Nu Skin Enterprises, Inc. (NYSE:NUS) and Constellation Brands, Inc. (NYSE:STZ) all carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Inter Parfums has an average positive earnings surprise of 15.6% over the last four quarters. It has a long-term earnings growth rate of 12.3%.

Nu Skin has an average positive earnings surprise of 10.8% % over the last four quarters. It has a long-term earnings growth rate of 8.7%.

Constellation Brands has an average positive earnings surprise of 11.7% over the last four quarters. It has a long-term earnings growth rate of 18.2%.

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