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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  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 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. 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