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Estee Lauder Beats in 4Q

Zacks Equity Research

Estee Lauder Companies Inc. (EL) posted fourth quarter fiscal 2012 earnings of 17 cents per share (excluding restructuring activities equal to 4 cents per share), which climbed 41.7% from 12 cents in the prior-year quarter. Profits during the quarter were aided by solid performance in the U.S. and China and strong sales growth in travel retail. The reported earnings inched past the Zacks Consensus Estimate of 16 cents.

The fiscal 2012 earnings per share came in at $2.27 (excluding restructuring activities equal to 11 cents per share), which was 22.7% higher than the prior-year earnings of $1.85 per share. The year-on-year increase was on the back of higher sales across all geographic regions.

The fiscal earnings also surpassed Zacks Consensus Estimate of $2.26 per share by a penny. Both fiscal year and fourth quarter earnings exceeded management’s guidance.

Net Sales

Net sales for the quarter rose 9% to $2.3 billion from $2.1 billion in the prior-year quarter. The quarterly sales were slightly ahead of  the Zacks Consensus Revenue Estimate of $2.2 billion.

Net sales for fiscal 2012 increased  10% to $9.7 billion from $8.8 billion in the prior-year on the back of strong sales in the skincare category. The quarterly sales matched the Zacks Consensus Revenue Estimate.


Gross margin went up 100 basis points (bps) to 80.4% in the fourth quarter of fiscal 2012 from 79.4% in the prior-year quarter. Operating expense margin also expanded 100 bps to 77.2% in the quarter from 76.2% in the previous-year quarter, while operating income margin remained flat at 3.2%.

During fiscal 2012, gross margin went up 150 basis points (bps) to 79.5% from 78.0% in the prior year. Operating expense margin expanded 40 bps to 66.0% from 65.6% in the previous year, while operating income margin inflated 110 bps to 13.5% from 12.4% in the prior year.


During fiscal 2012, Skin Care product sales rose 13% to $4.2 billion from $3.7 billion in the prior year. The increase was driven by new product innovation. Makeup sales climbed 10.0% to $3.7 billion from $3.4 billion a year ago. Fragrance sales rose 3% to $1.3 billion and Hair Care product sales went up 7.0% to $462.4 million.


Sales in the Americas rose 8.0% to $4.1 billion; sales surged 12% to $3.6 billion in Europe, the Middle East & Africa, whereas sales rose 11% to $2.0 billion in the Asia/Pacific region.

Financial Update

Net cash provided by operating activities was $1.2 billion, 10% higher than $1.0 billion in the prior-year period. This increase came on the back of higher net earnings and a net increase in cash from certain working capital components.

Estee Lauder exited the quarter with cash and cash equivalents of $1.3 billion compared with $1.2 billion a year ago. Long-term debt was almost flat with year-ago levels at $1.1 billion.


For the first quarter of fiscal 2013, diluted net earnings per common share excluding restructuring charges are projected in the range of 71 cents to 77 cents. Net sales are expected to increase between 5% and 7% in constant currency.

For fiscal 2013, diluted net earnings per common share excluding restructuring charges are projected to be $2.44 to $2.56. Net sales are expected to increase between 6% and 8% in constant currency.

Zacks Rank

Estee Lauder, which competes with Procter & Gamble Co. (PG), holds a Zacks #3 Rank, translating into a short-term Hold rating. We maintain a long-term Neutral recommendation on Estee Lauder.

New York-based Estee Lauder Companies is one of the world's leading manufacturers and marketers of skin care, makeup, fragrance and hair care products.

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