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What's in Store for Estee Lauder (EL) Stock in Q3 Earnings?

Zacks Equity Research

The Estee Lauder Companies Inc. EL is slated to report third-quarter fiscal 2017 results on May 3. The question lingering in investors’ minds is, whether this leading manufacturer and marketer of skin care and hair care products will be able to maintain its positive earnings surprise streak in the to-be-reported quarter.

The company has posted a positive surprise in the trailing four quarters, with an average of 10.2%. In fact, its earnings have outpaced the Zacks Consensus Estimate in 10 straight quarters now.

Let’s delve deeper how things are shaping up for this announcement.

What Does the Zacks Model Unveil?

Our proven model does not conclusively show earnings beat for Estee Lauder this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Estee Lauder has an Earnings ESP of -1.37%. This is because the Most Accurate estimate of 72 cents is pegged below the Zacks Consensus Estimate of 73 cents. Although the company’s Zacks Rank #3 increases the predictive power of ESP, we need a positive Earnings ESP in order to be confident about an earnings surprise.

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

Estee Lauder Companies, Inc. (The) Price, Consensus and EPS Surprise | Estee Lauder Companies, Inc. (The) Quote

Factors at Play

Estee Lauder remains on track with its product innovation strategy in order to enrich its portfolio of globally recognized flagship brands. Further, it is undertaking several strategic acquisitions to expand in the makeup category. Evidently, sales growth in the fiscal second quarter was driven by acquisitions of By Kilian, BECCA and Too Faced brands, which contributed nearly 90 basis points. Moreover, a strong product portfolio driven by small, mid-sized and luxury brands continues to take the company’s growth trajectory forward.

Estee Lauder forecasted its fiscal third-quarter net sales to grow 7–8% in constant currency, when it reported its f second quarter. Adjusted earnings are expected to grow in the range of 65–70 cents per share. In fact, the Zacks Consensus Estimate increased by a penny over the past seven days and is currently pegged higher at 73 cents. Further, analysts polled by Zacks expect revenues of $2,808 million for the fiscal third quarter, up 5.7% from the year-ago quarter.

However, we cannot ignore the fact that lackluster retail growth in Hong Kong, declining footfall at the company’s U.S. mid-tier department stores, slowdown in consumer spending power in the Middle East and higher store operating costs have been hurting Estee Lauder’s performance.

Additionally, the company’s MAC brand has been underperforming in the U.S. due to increased competitive pressure and ongoing challenges faced in North America. In fact, unfavorable currency continues to remain its headwinds. Resultantly, currency is expected to impact sales by 2%, while earnings are expected to be hurt by 3 cents per share in the fiscal third quarter.

Further, shares of Estee Lauder have declined 9.5% in the past one year compared with the Zacks categorized Cosmetics & Toiletries industry‘s fall of 23.6%.

Notably, Estee Lauder forms part of the Consumer Staples sector that is placed at top 50% of the Zacks Classified sectors (8 out of 16). Per the latest Earnings Outlook, the earnings growth for the sector looks decent. While total first-quarter earnings for the Consumer Staples sector are estimated to rise 4.2%, revenues are projected to improve 3.9%.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Energizer Holdings, Inc. ENR has an Earnings ESP of +5.88% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Newell Brands Inc. NWL has an Earnings ESP of +6.90% and a Zacks Rank #3.

Spectrum Brands Holdings, Inc. SPB has an Earnings ESP of +0.79% and a Zacks Rank #3.

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