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The Estee Lauder Companies (EL) Beats on Earnings in Q2

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The Estee Lauder Companies Inc. EL reported impressive second-quarter fiscal 2022 results, with the top and the bottom line increasing year over year. Sales and earnings surpassed the Zacks Consensus Estimate. The company recorded net sales growth in every region and product category during the quarter. It is also benefiting from impressive online business. Management raised its fiscal 2022 view upwards.

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 $3.01 per share, which surpassed the Zacks Consensus Estimate of $2.63. The bottom line surged 15% (same at constant currency) year over year.

Net sales of $5,539 million surpassed the Zacks Consensus Estimate of $5,474.5 million. The metric increased 14% (same at cc) from $4,853 million reported in the year-ago quarter. Management highlighted that net sales improved across all regions and product categories, on the back of a rebound in brick-and-mortar retail stores, mainly in western markets. Strength in the company’s online business also contributed to growth. The company gained from robust consumer response to holiday offerings as well as through key shopping moments. Further, organic net sales increased 11%.

Gross profit came in at $4,316 million, up 15% year over year. The gross margin expanded to 77.9% from 77.7% reported in the year-ago quarter.

The company reported an operating income of $1,418 million, up from $1,063 million reported in the year-ago quarter.

Zacks Investment Research
Zacks Investment Research

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Product-Based Segment Results

Skin Care’s sales were up 12% year over year (up 11% at cc) to $3,159 million. Makeup revenues increased 11% year over year (up 12% at cc) to $1,386 million. In the Fragrance category, revenues surged 29% year over year (up 30% at cc) to $799 million. Hair Care sales totaled $180 million, up 17% (up 18% at cc).

Regional Results

Sales in the Americas rose 24% year over year (same at cc) to $1,300 million. Revenues in Europe, the Middle East & Africa region increased 15% (up 16% at cc) to $2,338 million. In the Asia-Pacific region, sales increased 7% (up 6% at cc) to $1,902 million.

Other Updates

The company exited the quarter with cash and cash equivalents of $4,603 million, long-term debt of $5,259 million and total equity of $6,252 million.

Net cash flow provided by operating activities for six months ended Dec 31, 2021, came in at $1,846 million. The company returned $1,837 million 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 Mar 15, 2022, to shareholders of record as of Feb 28.

COVID-19 Update

While most brick-and-mortar retail stores that sell The Estee Lauder Companies’ products (company and customer operated) remained operational during much of the second quarter, there were intermittent shutdowns in the rest of the world.

The company faced regional lockdowns in mainland China. Most of Western Europe, mainly in the United Kingdom, saw increased restrictions as the second quarter progressed. The North America region also faced restrictions and store closures varied by location during the end of 2021. Moreover, in places where stores were operational, consumer traffic was below the pre-pandemic levels globally.

The company notified that international passenger traffic remained largely restricted worldwide. Passenger traffic in Europe, the Middle East & Africa and The Americas improved, although it was significantly below the pre-pandemic pandemic levels. Higher travel restrictions remained in place through Asia/Pacific region throughout much of the second quarter.

The company has been facing adverse impacts stemming from pandemic-led transportation and production delays owing to port congestion, labor and container shortages as well as shipment delays among other reasons. Such high costs are likely to affect the cost of sales and operating expenses for the rest of fiscal 2022. Management is on track to counter such headwinds via strategic price rise, product mix, the timing of shipments and use of air freight, among other efforts.

While the demand for makeup improved significantly year over year, it continues to remain below pre-pandemic levels owing to reduced makeup usage occasions and masks. The company’s skin care fragrance and hair care categories have improved from pre-pandemic levels.

Guidance

The Estee Lauder Companies is increasing its fiscal 2022 outlook. The updated view takes into account solid to-date performance along with risks associated with ongoing volatility and disruptions for the back half of the year.

For fiscal 2022, the company now projects reported net sales to increase in the band of 13-16% year over year. Earlier, the metric was expected to grow in the band of 12-15% year over year. Organic net sales are now anticipated to increase in the band of 10-13% year over year. Earlier, the metric was expected to grow in the band of 9-12% year over year.

Adjusted earnings are now anticipated to increase 14-17% at cc in fiscal 2022. Earlier, the metric was projected to increase 11-14% at cc.

For third-quarter fiscal 2022, the company projects reported net sales to increase in the band of 10-12% year over year. Organic net sales are anticipated to grow between 8% and 10% in the quarter. Adjusted earnings are anticipated to be down 5% to 1% growth at cc.

Shares of this Zacks Rank #3 (Hold) company have gained 26.2% in the past year against the industry’s decline of 8.9%.

More Consumer Staple Bets

Some other top-ranked companies are Helen of Troy Limited HELE, Inter Parfums, Inc. IPAR and United Natural Foods UNFI.

Helen of Troy, the developer and distributor of a portfolio of consumer products worldwide, currently sports a Zacks Rank #1 (Strong Buy). Shares of HELE have declined 10.4% in the past year.

The Zacks Consensus Estimate for Helen of Troy’s current financial year’s sales and EPS suggests growth of 0.8% and 0.6%, respectively, from the year-ago period’s figures. HELE has a trailing four-quarter earnings surprise of 19.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Inter Parfums develops, manufactures and distributes prestige perfumes and cosmetics. It currently sports a Zacks Rank #1. Inter Parfums has a trailing four-quarter earnings surprise of 29.7%, on average.

The Zacks Consensus Estimate for IPAR’s current financial-year sales and EPS suggests growth of 63.2% and 117.4%, respectively, from the year-ago period’s figures. Shares of the company have surged 45.1% in the past year.

United Natural Foods, the leading distributor of natural, organic and specialty food and non-food products in the United States and Canada, sports a Zacks Rank #1. Shares of UNFI have gained 53.3% in the past year.

The Zacks Consensus Estimate for United Natural Foods’ current financial year EPS and sales suggests growth of 8.8% and 5.1%, respectively, from the year-ago reported number. UNFI has a trailing four-quarter earnings surprise of 35.4%, on average.


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