Estee Lauder Misses on Q4 Earnings, Issues FY15 Guidance - Analyst Blog

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Estee Lauder Companies Inc. ( EL ) posted fourth-quarter fiscal 2014 earnings of 45 cents per share (excluding restructuring charges) which surpassed the prior-year results by a massive 83%. Earnings, however, missed the Zacks Consensus Estimate of 56 cents by 20%.

Results excluded the impact of charges, principally related to the Venezuela remeasurement of exchange rate and acceleration of orders that were scheduled in fiscal 2015. Including the effect of the remeasurement and acceleration of orders, Estee Lauder reported earnings per share of 66 cents.

The Estee Lauder Companies Inc - Earnings Surprise | FindTheBest



Excluding the impact of one-time activities, the Venezuela remeasurement charge and shift of sales orders from fiscal 2013 to fiscal 2014, net sales went up 5% to $2.73 billion on the back of higher sales in most of the geographic regions and major product categories. Quarterly net sales managed to beat the Zacks Consensus Estimate of $2.7 billion.

Gross margin inflated 20 basis points (bps) to 80.4% in the quarter backed by higher sales. Higher operating expenses resulted in operating income margin contraction of 780 bps to 66.4%.

Fiscal 2014 Results

Estee Lauder's fiscal 2014 earnings of $2.95 cents per share (excluding restructuring charges) came in above management's guided range of $2.86 to $2.90. Earnings surpassed the prior-year results by 12% but missed the Zacks Consensus Estimate of $3.05 by 3.3%.

Results excluded the impact of charges, principally related to the Venezuela remeasurement of exchange rate. Including the effect of the remeasurement, Estee Lauder reported earnings per share of $3.06.

Excluding the impact of one-time restructuring activities, the Venezuela remeasurement charge and shift of sales orders from fiscal 2015, net sales went up 7% year over year to $10.97 billion on the back of higher sales in most of the geographic regions and major product categories. Full fiscal sales were in line with the Zacks Consensus Estimate.

Fiscal 2014 Segment Results

By Category

In fiscal 2014, the Skincare category reported 8% year-over-year growth benefiting from strong growth from the company's recently launched products. The Fragrance product line and Makeup category reported year-over-year growth of 9% backed by strong sales of makeup artist brands and luxury fragrance brands like Tom Ford and Joe Malone. Hair Care reported only 5% growth year over year backed by strong sales of the brand Aveda. Other products, contributing less than 1% to total revenue, registered maximum growth of 17%.

By Geography

Americas : Excluding the effect of shift of orders, sales in Americas rose 7.0% year-over-year on a constant currency basis to $4.57 billion. Sales increased on the back of growth in the company's makeup artist, luxury and certain heritage brands. Excluding the effect of shift of orders, operating income shot up 27% year-over-year to $537.3 million backed by increased sales and tight spending.

Europe, the Middle East & Africa: Double-digit growth in travel retail drove overall sales for this segment. Sales grew 9% year-over-year on a constant currency basis to $4.16 billion. Operating income increased 15% year-over-year to $968.3 million on the back of higher results from the company's travel retail business and the United Kingdom.

Asia/Pacific: Sales in the region improved 9% year-over-year on a local currency basis to $2.23 billion, backed by double-digit sales growth in China, Japan, Hong Kong, Australia and Singapore. Operating income increased 14% year over year to $349.1 million, led by Korea, Japan and Hong Kong.

Other Financial Update

Estee Lauder has announced a dividend of 20 cents per share payable Sep 15, 2014 to stockholders of record at the close of business on Aug 29.

Guidance for First Quarter & Fiscal 2015

Management expects the business momentum to continue in the upcoming year backed by 3-4% growth in the global prestige beauty sector.

However, due to acceleration of sales orders in connection with the company's rollout of its last major wave of Strategic Modern Initiative in July 2014, first quarter and full-fiscal 2015 results are likely to be hurt.

For the first quarter, Estee Lauder expects net sales excluding the effect of the accelerated retailer orders to grow between 5% and 6% in constant currency. Earnings per share, excluding the effect of the accelerated retailer orders, are projected between 72 cents and 76 cents.

For fiscal 2015, net sales excluding the effect of the accelerated retailer orders are projected to grow between 6% and 7% in constant currency. Earnings per share, excluding the effect of the accelerated retailer orders, are expected between $3.10 and $3.20.

Estee Lauder expects growth to be fueled by success in high-growth channels and emerging markets.

Other Stocks to Consider

Headquartered in New York, Estee Lauder engages in the manufacture and sale of skin care, makeup, fragrance and hair care products, and currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer staple sector include Treehouse Foods, Inc ( THS ), J&J Snack Foods Corp. ( JJSF ) and Pinnacle Foods Inc ( PF ). While Treehouse sports a Zacks Rank #1 (Strong buy), J&J Snack and Pinnacle hold a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: EL , PF , JJSF , THS

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