Estee Lauder Companies Inc. (EL) posted robust results for the third quarter of fiscal 2011 with quarterly earnings of 71 cents per share. Earnings outpaced Zacks Consensus Estimate of 57 cents by 24.6% and shot 100% from 34 cents delivered in the prior-year quarter. Profit was recorded on extensive higher-margin product launches and effective advertising.
The results prompted the company to raise its full-year diluted earnings estimate to $3.55 to $3.65 per share.
However, the New York-based Estee Lauder fears that the Japan disaster will hamper the total company sales for the full fiscal by about half a percentage point. The company believes that such negative effects will linger at least for the next six to nine months pushing it to monitor the situation and reassess its estimates.
Net Sales and Operating Profit
Net sales for the quarter grew 16.0% year-over-year to $2.17 billion from $1.86 billion in the prior-year quarter. The top line growth was primarily driven by stronger overall business, particularly from the company’s major brands, coupled with a weaker U.S. dollar. The net sales reported by the company was well ahead of the (ahead of what?)
About $42 million was added to the quarter’s net sales owing to the additional orders from Europe on the back of implementation of ‘SAP’ in some of the affiliates of the company. Again about $31 million was contributed by the Company’s long-term perfumery strategy adopted in the Europe, the Middle East & Africa region.
The company posted sales gains in each of its geographic regions and major product categories. Further, strong sales growth came from the company’s international businesses, particularly in travel retail, Asia/Pacific and emerging markets.
For the full year fiscal 2011, net sales are expected to grow between 10% and 11% in constant currency. The company expects to massively increase global advertising spending with new initiatives and major product launches.
While gross profit rose 19% year over year to $1683.1 million, operating expense climbed 14% from the year-ago period to $1,474.0 million in the quarter. Operating income soared 66% to $209.1 million from the corresponding period a year ago.
By product categories – Skin Care product sales rose 14% to $933.4 million, Makeup sales jumped 24.0% to $878.2 million, Hair Care product sales inched 14.0% to $110.0 million and Fragrance product sales surged 4% to $232.0 million.
Makeup segments’ operating income increased over 100%, primarily reflecting improved results from certain of the company’s heritage brands and from its makeup artist brands. While income saw a sharp ascent in Skin Care segment, Fragrance segment’s operating loss slid, primarily reflecting higher net sales of designer fragrances and recent product launches, cost reductions.
However, Hair care operating results decreased, reflecting goodwill and other intangible asset impairment charges related to the Ojon brand.
By region – sales in The Americas rose 12.0% to $928.9 million; in Europe, the Middle East & Africa sales surged 20% to $794.7 million, whereas in the Asia/Pacific region, sales soared 19.0% to $442.8 million.
While operating income in all the regions experienced year-over-year growth, that in America requires special mention as it rose 100% reflecting the strong sales gains in the region.
Cash Flow and Balance Sheet
The company exited the quarter with net cash flows of $727.6 million compared with $798.2 million in the prior year. The decrease was primarily attributable to higher working capital requirements.
As part of a four-year strategic plan (fiscal year 2010-2013), which includes lessening of headcount, and realigning and optimizing the structure of the geographic regions, resulted in $48 million savings during the reported quarter. Management expects to realize savings of $190 million during fiscal 2011.
Estee Lauderwhich competes with Procter & Gamble Co. (PG) holds a Zacks #3 Rank, which translates into short-term Hold rating.