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The Estee Lauder Companies (EL) Beats on Earnings in Q3

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The Estee Lauder Companies Inc. EL reported third-quarter fiscal 2022 results, with the top and the bottom line increasing year over year. Sales missed the Zacks Consensus Estimate while earnings surpassed the same.

Results benefited from organic growth across all categories, driven by Fragrance’s impressive performance worldwide and makeup in western markets. The company witnessed robust consumer demand despite an inflationary environment. Pandemic-induced restrictions in the Asia/Pacific region were a headwind.

Management revised its fiscal 2022 outlook to show impressive year-to-date performance coupled with added headwinds that are affecting the fiscal fourth-quarter view. These headwinds include pandemic-induced restrictions in China, which are impacting travel retail business. Also, the invasion of Ukraine is a major hurdle.

The Estee Lauder Companies Inc. Price and EPS Surprise

The Estee Lauder Companies Inc. Price and EPS Surprise
The Estee Lauder Companies Inc. Price and EPS Surprise

The Estee Lauder Companies Inc. price-eps-surprise | The Estee Lauder Companies Inc. Quote

Quarter in Detail

The company posted adjusted earnings of $1.90 per share, which surpassed the Zacks Consensus Estimate of $1.66. The bottom line surged 17% (up 18% at constant currency) year over year.

Net sales of $4,245 million missed the Zacks Consensus Estimate of $4,323.1 million. The metric increased 10% (up 11% at cc) from $3,864 million reported in the year-ago quarter. Organic net sales grew 9% in the quarter. Management highlighted that net sales grew in every product category, mainly reflecting the continued rebound in brick-and-mortar retail stores, fueled by double-digit growth in The Americas and Europe, the Middle East & Africa (EMEA) region. Strength in the company’s global online business was an upside. The company witnessed increased pandemic-inflicted restrictions across China from the middle of March 2022. Such temporary restrictions caused softness in consumer traffic and travel, among other downsides.

Gross profit came in at $3,251 million, up 11% year over year. The gross margin expanded to 76.6% from 75.7% reported in the year-ago quarter.

The company reported an operating income of $738 million, up from $616 million reported in the year-ago quarter. Operating income margin came in at 17.4%, up from 15.9% reported in the year-ago quarter.

Product-Based Segment Results

Skin Care’s sales were up 6% year over year (up 7% at cc) to $2,395 million. Makeup revenues increased 9% year over year (up 11% at cc) to $1,114 million. In the Fragrance category, revenues surged 28% year over year (up 31% at cc) to $579 million. Hair Care sales totaled $147 million, up 15% (up 17% at cc).

Regional Results

Sales in the Americas rose 15% year over year (up 14% at cc) to $1,053 million. Revenues in Europe, the Middle East & Africa region increased 17% (up 19% at cc) to $1,990 million. In the Asia-Pacific region, sales declined 4% (down 3% at cc) to $1,203 million.

Other Updates

The Zacks Rank #3 (Hold) company exited the quarter with cash and cash equivalents of $3,836 million, long-term debt of $5,188 million and total equity of $6,186 million.

Net cash flow provided by operating activities for nine months ended Mar 31, 2022, came in at $1,969 million. The company returned $2.6 billion in cash to shareholders through dividend payouts and share repurchases.

In a separate press release, the company declared a quarterly dividend of 60 cents per share on Class A and Class B shares. The dividend will be paid out on Jun 15, 2022, to shareholders of record as of May 31.

COVID-19 Update

Management highlighted that COVID-19 continued affecting the company’s operating environment worldwide, mainly affecting retail traffic, travel, supply chain, inventory levels and other logistics in the quarter under review. The resurgence of coronavirus cases across several Chinese provinces resulted in restrictions during the end of the fiscal third quarter. Retail traffic, travel and distribution capabilities were temporarily restricted.

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Zacks Investment Research


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Guidance

For fiscal 2022, the company now projects reported net sales to increase in the band of 7-9% year over year. Earlier, the metric was expected to increase 13-16% year over year. Organic net sales are now anticipated to increase in the range of 5-7% year over year. The metric was earlier expected to grow in the band of 10-13% year over year.

The company expects adjusted earnings per share (EPS) between $7.05 and $7.15 for fiscal 2022, compared with the previous range of $7.43-$7.58. Adjusted earnings are now anticipated to increase 8-10% at cc in fiscal 2022. Earlier, the metric was projected to increase 14-17% at cc.

EL’s shares fell 16.8% in the past three months compared with the industry’s decline of 14.9%.

3 Hot Staple Bets

Some better-ranked stocks are Inter Parfums, Inc. IPAR, McCormick & Company MKC and Sysco Corporation SYY.

Inter Parfums develops, manufactures and distributes prestige perfumes and cosmetics. It currently carries a Zacks Rank #2 (Buy). Inter Parfums has a trailing four-quarter earnings surprise of 46.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for IPAR’s current financial year sales and EPS suggests growth of 12.5% and 10.9%, respectively, from the year-ago period’s figures.

McCormick is one of the leading manufacturers, marketers and distributors of spices, seasonings, specialty foods and flavors. It presently carries a Zacks Rank #2.

The Zacks Consensus Estimate for McCormick's current financial year sales and EPS suggests growth of 5% and 3.9%, respectively, from the year-ago period’s reported figures. MKC has a trailing four-quarter earnings surprise of 7.3%, on average.

Sysco, the marketer and distributor of food and related products, currently carries a Zacks #2. SYY has a trailing four-quarter earnings surprise of 3.7%, on average.

The Zacks Consensus Estimate for Sysco’s current financial year sales and earnings suggests growth of 30.4% and 120.1%, respectively, from the corresponding year-ago period’s reported figures.


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The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report

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Sysco Corporation (SYY) : Free Stock Analysis Report

Inter Parfums, Inc. (IPAR) : Free Stock Analysis Report

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