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Earnings Preview: Estee Lauder

Zacks Equity Research

Estee Lauder Companies Inc. (EL) is all set to report its first quarter fiscal 2013 results before the opening bell on November 1, 2012. The Zacks Consensus Estimate for the quarter is 77 cents (year-over-year decline of 45.4%) on revenues of $2.55 billion (year-over-year increase of 2.8%). The earnings estimate is at the highest end of the guidance range of 71 cents to 77 cents, which was announced in the fourth quarter fiscal 2012 conference call.

Fourth Quarter Recap

Estee Lauder’s fourth quarter fiscal 2012 adjusted earnings of 17 cents per share climbed 41.7% aided by solid performance in the U.S. and China and strong sales growth in travel retail. The earnings inched past the Zacks Consensus Estimate of 16 cents.

Net sales for the quarter rose 9% to $2.3 billion and were slightly ahead of the Zacks Consensus Estimate of $2.2 billion.

Gross margin went up 100 basis points (bps) to 80.4% in the fourth quarter, while operating income margin remained flat at 3.2%.

Agreement of Estimate Revisions

For the first quarter of fiscal 2013, 1 out of 14 estimates moved upward while one estimate moved downward over the past 30 days.

For fiscal 2013, 4 out of the 16 estimates moved in the positive direction over the past 30 days, while one moved in the negative direction.

We believe that the analysts are optimistic on the company’s sales growth across all the geographic regions. Estee Lauder also expects its first quarter sales to increase. However, higher operating expenses might offset sales growth.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for first quarter fiscal 2013 has remained static over the past 30 days at 77 cents. However, the fiscal 2012 estimate has increased by a penny from $2.57 to $2.58 per share over the same timeframe.

Surprise History

Over the last four quarters, Estee Lauder has surpassed estimates thrice and matched once, thereby resulting in an average earnings surprise of 12.69%. The company recorded a maximum positive surprise of 16.67% in the first quarter of fiscal 2012.

Our Recommendation

New York-based Estee Lauder, which competes with Procter & Gamble Co. (PG) and holds a Zacks #3 Rank (short-term Hold rating), is one of the world's leading manufacturers and marketers of skin care, makeup, fragrance and hair care products.

We are encouraged by the acquisitions of the Justin Bieber and Nicky Minaj fragrance brands from Give Back Brands LLC in July, 2012, which will add many famous and popular brands to the company’s portfolio, thereby boosting sales.

However, slow recovering developed economies, tepid growth in the job market, high interest rates and still tightened credit availability continues to hurt costumer discretionary spending.

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