Estee Lauder Companies Inc. (EL) posted robust results for the fourth quarter and fiscal year 2011. Quarterly earnings were 25 cents per share in the fourth quarter, beating the Zacks Consensus Estimate by a penny. However, the earnings lagged the prior-year quarter's earnings of 29 cents, down 14.0%.
The full-year 2011 earnings results were $3.69, in line with the Zacks Consensus Estimate, while surpassing the fiscal 2010 earnings of $2.75 per share. The earnings also exceeded the management’s guidance of $3.55 to $3.65 per share, anticipated in the third quarter.
Fiscal 2011 results included returns and charges associated with restructuring activities of 21 cents per share. On the other hand, fiscal 2010 full year results included returns and charges associated with restructuring activities of 28 cents per share, and a charge related to the extinguishment of debt of 9 cents.
Profit was recorded on strong sales especially in North America and from the benefits of the initiatives that have been implemented. Overall, Estee Lauder’s strong business, particularly from the company’s largest brands, helped by a weaker U.S. dollar, led to the growth.
For the first quarter of 2011, reported earnings including restructuring charges are projected between $1.07 and $1.17, while it is projected between $1.10 and $1.20 excluding restructuring charges. For fiscal 2012, earnings including restructuring charges are projected between $3.84 and $4.12, while it is projected between $4.00 and $4.20, excluding charges.
Net Sales
Net sales for the quarter grew 12.0% year-over-year to $2.06 billion from $1.84 billion in the prior-year quarter. Further, net sales in fiscal 2011 climbed 13.0% year-over-year to $8.81 billion from $7.81 billion in the prior-year quarter. Additionally, sales exceeded both the Zacks Consensus Revenue Estimates of $2.01 billion and $8.77 billion, for the quarter and fiscal 2011.
The top-line growth was primarily driven by strong sales gains in major product categories in all geographic regions, reflecting increases from higher-margin product launches and effective advertising spending. Again about $31 million were contributed by the company’s long-term perfumery strategy adopted in the Europe, the Middle East & Africa region.
About $42 million were added to the fourth quarter’s net sales owing to the corresponding reduction of orders from some international retailers on the back of implementation of ‘SAP’ in some of the affiliates of the company.
For fiscal 2012, net sales are expected to grow between 6% and 8% in constant currency. The company expects foreign currency translation to negatively impact sales by less than 1% versus the prior-year period.
For the first quarter of 2011, net sales are expected to increase between 11% and 13% in constant currency, while foreign currency translation is expected to positively impact sales by approximately 3% to 4% versus the prior-year period.
Margins
Gross margin rose 180 basis points (bps) to 79.4% in the fourth quarter of 2011, while gross margin in the full year 2011 increased 140 bps to 78.1%.
Though operating expense margin soared 180 bps to 75.7% in the quarter, operating income margin remained flat at 3.7% compared to the corresponding period a year ago. In fiscal 2011, operating expense margin declined 40 bps to 65.1% and operating income margin jumped 180 bps to 13.0%.
Segments
By product categories – Skin Care product sales rose 15% to $3.72 billion, Makeup sales jumped 13.0% to $3.37 billion, Hair Care product sales inched 4.0% to $432.3 million and Fragrance product sales surged 9% to $1.24 billion.
Management believes that on a product category basis, in constant currency, hair care and skin care are expected to be the leading sales growth categories, followed by makeup and fragrance.
Fragrance segments’ operating income increased over 200%, primarily reflecting higher net sales from Estee Lauder and designer fragrances driven by recent product launches, cost reductions and a more strategically focused approach to support spending on successful launches and classics, and in markets and channels with the greatest potential.
While income saw a sharp ascent in Skin Care and Make Up segments, Hair Care segment’s operating loss slid, primarily reflecting the reformulation and re-launch of Ojon brand products. This decrease was partially offset by higher results from Aveda and a lesser amount of goodwill and other intangible asset impairment charges related to the Ojon brand compared to the prior year.
By region – Sales in The Americas rose 10.0% to $3.8 billion; in Europe, the Middle East & Africa sales surged 14% to $3.26 billion, whereas in the Asia/Pacific region, sales soared 17.0% to $1.76 billion.
Management expects that its geographic region net sales growth in constant currency is expected to be led by Asia/Pacific, followed by Europe, the Middle East & Africa and the Americas.
Operating income in all the regions experienced year-over-year growth, with America increasing sharply reflecting strong sales gains, partially offset by incremental spending in line with the company’s strategy.
Over the long-term, the company also raised its operating margin target to between 14.5% and 15%.
Other Financial Update
The company exited fiscal 2011 with net cash flows of $1.03 billion compared with $956.7 million in the prior year. The increase was primarily attributable to higher net earnings and accrued income taxes, partially offset by higher levels of accounts receivable balances, as well as higher accounts payable cash outflows.
Inventory days at the end of June 30, 2011 were higher compared to June 30, 2010, reflecting the building of inventory to support near-term sales growth and improve service levels.
The company remains on track with its strategic plan, which includes lessening of headcount, and realigning and optimizing the structure of the geographic regions, resulted in $199 million savings during the fiscal year 2011. The company has now extended its financial goals to fiscal 2014.
In connection with its long-term strategic plan, as well as certain on-going initiatives, Estee Lauder expects to realize savings of between $20 million and $25 million in the first quarter of fiscal 2012, and between $100 million and $125 million during fiscal 2012.
Estee Lauder which competes with Procter & Gamble Co. (PG) holds a Zacks #2 Rank, which translates into a short-term Buy rating.
ESTEE LAUDER (EL): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment