U.S. markets closed
  • S&P Futures

    4,452.00
    +6.25 (+0.14%)
     
  • Dow Futures

    34,750.00
    +76.00 (+0.22%)
     
  • Nasdaq Futures

    15,315.25
    -3.50 (-0.02%)
     
  • Russell 2000 Futures

    2,250.80
    +6.80 (+0.30%)
     
  • Crude Oil

    74.46
    +0.48 (+0.65%)
     
  • Gold

    1,750.20
    -1.50 (-0.09%)
     
  • Silver

    22.43
    +0.01 (+0.02%)
     
  • EUR/USD

    1.1723
    -0.0023 (-0.20%)
     
  • 10-Yr Bond

    1.4600
    +0.0500 (+3.55%)
     
  • Vix

    17.75
    -0.88 (-4.72%)
     
  • GBP/USD

    1.3669
    -0.0051 (-0.37%)
     
  • USD/JPY

    110.7740
    +0.4730 (+0.43%)
     
  • BTC-USD

    43,624.88
    +871.02 (+2.04%)
     
  • CMC Crypto 200

    1,067.20
    -35.86 (-3.25%)
     
  • FTSE 100

    7,051.48
    -26.87 (-0.38%)
     
  • Nikkei 225

    30,248.81
    +609.41 (+2.06%)
     

Estee Lauder Companies Inc. (The) -- Moody's assigns A1 to Estee Lauder notes offering; outlook stable

·18 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

Rating Action: Moody's assigns A1 to Estee Lauder notes offering; outlook stableGlobal Credit Research - 01 Mar 2021New York, March 01, 2021 -- Moody's Investors Service, ("Moody's") today assigned an A1 rating to new senior unsecured notes being offered by The Estee Lauder Companies Inc. ('Estee Lauder'). The company intends to use net proceeds for general corporate purposes, which may include funding the purchase of the company's investment in DECIEM Beauty Group Inc. The company's ratings including the A1 senior unsecured notes rating, Prime-1 commercial paper rating and stable outlook are not affected.Estee Lauder's announcement on February 23rd [1] that it will increase its 29% minority interest in DECIEM to 76% is credit negative. Moody's estimates that the planned, partially debt financed acquisition of DECIEM will reduce retained cash flow to net debt ("RCF/Net Debt") to about 68% from 80% for the twelve months ended December 31, 2020 but will remain well above the 40% level that the agency has said could potentially lead to a downgrade. Debt to EBITDA financial leverage will remain relatively flat at 2.5x. Pro-forma EBITDA margins will remain relatively stable at 24%.The transaction follows Estee Lauder's 26% minority investment in DECIUM in December 2017. Estee Lauder plans to acquire the rest of DECIEM in 2024, at a to be determined enterprise value. DECIEM is an entry level prestige skin care company and is the parent company of brands such as The Ordinary and NIOD. DECIEM generates about $460 million in annual revenue. Management expects the acquisition to close by the end of June 2021.The following ratings are affected by today's action:New Assignments:..Issuer: Estee Lauder Companies Inc. (The)....Senior Unsecured Notes, Assigned A1RATINGS RATIONALEEstee Lauder Inc.'s strong credit profile (A1 stable) reflects the company's leading market position in prestige beauty supported by a portfolio of well recognized brands. The company's conservative financial policies support strong credit metrics with good cash flow generated from its geographically diverse portfolio. Although credit metrics and cash flows have weakened as a result of the coronavirus, Moody's expects good execution of the company's leading market positions to drive improved operating performance to pre-pandemic levels over the next 12-18 months. Further, Estee Lauder's multi-year reorganization plan will deliver additional cash flow, while improving financial and operating flexibility. Moody's expects this flexibility, coupled with Estee Lauder's distribution capabilities and strong track record of innovation, to continue to drive revenue growth at or above the industry average after the impacts of the coronavirus pandemic have subsided. Cash flow remains healthy through economic cycles, providing flexibility to re-invest in a range of economic environments. Products are somewhat discretionary and vulnerable to consumer spending pullbacks, but the company is resilient in economic downturns as cyclical revenue losses, if any, are manageable. Estee Lauder's credit profile is tempered by the discretionary and highly competitive prestige beauty category and limited product diversification as it focuses exclusively on the beauty segment.ENVIRONMENTAL SOCIAL AND GOVERNANCE CONSIDERATIONSThe coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of Estee Lauder from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous, and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around the rating agency's forecasts is unusually high.Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Volatility can still be expected in 2021 due to uncertain demand characteristics, channel disruptions, and supply chain disruptions. The consumer packaged goods industry has relatively low environmental and social risk. That said the two most important Environmental, Social and Governance (ESG) factors affecting Estee Lauder are social risks and governance considerations related to its financial policies.Social considerations impact Estee Lauder in several ways. First, Estee Lauder is a "beauty" company. It sells products that appeal to customers almost entirely due to "social" considerations. That is, such products such as makeup and cologne help individuals fit in to society and comply with social mores and customs. Hence social factors are the primary driver of Estee Lauder's sales, and hence the primary reason it exists. To the extent such social customs and mores change, it could have an impact -- positive or negative -- on the company's sales and earnings. However, Moody's believes such risk is manageable as such customs and mores change at a measured pace, and as the company is able to adapt to changing "fashion" trends, and hence offset such social changes. The company engages with social media influencers, which is in line with demographic and societal trends. While negative product reviews for the company have historically been modest, we recognize that a high number of adverse product reviews could negatively impact product demand.A second element of Estee Lauder's addressing social risks is in its attempts to be a good corporate citizen. The company supports diversity and inclusion. Roughly 84% of the company's work force is female and more than 55% of the company's vice presidents or above are also female. Estee Lauder is committed to improving the safety of its work force and to continue decreasing the total incident rate (total recordable incidents per 100 workers) to ensure continued world class-leading levels, with a goal of 0.15 by 2025.From an environmental perspective, Estee Lauder expects that at least 90% of its palm-based ingredients (palm oil and derivatives) will be certified "sustainable" from the Roundtable on Sustainable Palm Oil (RSPO) physical supply chains by 2025. This is one of the ways that Estee Lauder drives responsible production. Moody's views Estee Lauder's financial policies as conservative. Although the company has moderate event risk given its appetite for debt financed acquisitions, we recognize the company's track record of efficiently integrating those acquisitions, while improving profitability and cash flow and quickly reducing financial leverage.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGThe stable rating outlook reflects Moody's belief that Estee Lauder will continue to grow revenue after the impacts of the coronavirus have moderated and generate a healthy level of cash relative to its overall funded debt. The outlook also incorporates our expectation that the company will be acquisitive but will rapidly deleverage following debt funded acquisitions. The outlook also takes into account the company's ability to weather the global pandemic given its strong cash flow generation and ability to effectively manage costs and conserve cash in such a turbulent time.Estee Lauder's ratings could be upgraded if the company maintains its strong global franchise of beauty brands, achieves greater diversification, and sustains strong profitability and cash flows. Additionally, a commitment to maintain conservative financial policies would be necessary for an upgrade.The ratings could be downgraded if the value of the company's global franchise deteriorates, or the company adopts a more aggressive financial policy, as demonstrated by large debt funded acquisitions or share repurchases. Specifically, Estee Lauder's ratings could be downgraded if EBITA margins fall below 15% or retained cash flow to net debt is sustained below 40%.The principal methodology used in this rating was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.The Estee Lauder Companies Inc. ("Estee Lauder"), headquartered in New York City is one of the world's leading manufacturers and marketers of beauty products. The company's products are sold in over 150 countries and territories. Products are sold across four major beauty categories including makeup, skin care, fragrance, and hair care. Lauder family members, subject to a Stockholder's Agreement, control approximately 86% of the company's voting power largely through ownership of higher voting Class B shares. The company generates about $15 billion in annual sales.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.REFERENCES/CITATIONS[1] Form 8-K (SEC) 23-Feb-2021Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Chedly Louis VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 John E. Puchalla, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​