Estee Lauder Companies Inc.(EL) posted fourth-quarter fiscal 2013 earnings of 24 cents per share (excluding restructuring charges), up 41% from 17 cents per share in the prior-year quarter. The reported earnings also exceeded the Zacks Consensus Estimate of 22 cents by 9.1%.
Higher operating efficiency from EL’s Strategic Modernization Initiative (SMI) as well as strong sales drove the upside in profits.
For fiscal 2013, earnings per share increased 16% year over year to $2.64. Earnings also surpassed the Zacks Consensus Estimate of $2.61.
Quarter in Detail
Net sales, excluding foreign currency translation, climbed 8% to $2.4 billion. The improvement in sales came on the back of higher across-the-board sales gains in most of the geographic regions and major product categories. However, quarterly sales remained in line with the Zacks Consensus Estimate of $2.41 billion.
For fiscal 2013, net sales improved 6% to $10.2 billion. The results were in line with the Zacks Consensus Estimate.
In the quarter under review, the Hair Care and Skin Care product line were the strongest with 6% growth over the year-ago quarter. Makeup and Fragrance followed next with 5% and 3% growth, respectively. Other products, with less than 1% of total revenue, declined 32%.
Gross margin contracted 20 basis points (bps) to 80.2% in the fourth quarter of fiscal 2013 owing to higher cost of sales. Higher selling, general & administrative expenses led to operating income margin contraction of 300 bps to 77.2%.
Segment Details
Americas: Sales in the Americas rose 5.0% to $992.5 million. Sales increased on the back of growth in the company's makeup artist and heritage brands. Operating income improved to $50.8 million compared to a loss of $59.4 million incurred last year. The upside was driven by favorable category mix and strong performance of the flagship brands of EL.
Europe, the Middle East & Africa: Double-digit growth in travel retail drove overall sales for this segment. Sales grew 13% on a constant currency basis to $980.6 million. However, sluggish conditions in Russia, Spain and the Balkans restricted growth to a certain extent. Operating income improved 5% to $154.4 million on the back of a strong travel retail business.
Asia/Pacific: Sales in the region improved 5% to $435.7 million, mainly owing to the increased demand for skin care products in China, Hongkong and Thailand. However, weakness in Korea partially offset the sales growth. EL suffered operating loss of $54.9 million due to soft results in Korea and Japan.
Other Financial Update
As of Jun 30, 2013, the company held $1.49 billion cash and cash equivalents compared to $1.44 billion as of Mar 31, 2013. Long-term debt remained flat at $1.32 billion compared to the end of the previous quarter.
EL has announced a dividend of 18 cents per share on the company's Class A and Class B Common Stock payable on Sep 16, 2013 to stockholders of record at the close of business on Aug 30, 2013.
Guidance
For fiscal 2014, EL expects global prestige beauty to increase a meagre 3%–4%, reflecting continued weakness in certain Southern European countries and Korea. Earnings per share excluding restructuring charges are projected in the range of $2.74 to $2.87. Net sales are expected to increase between 6%–8% in constant currency.
For the first quarter of fiscal 2014, earnings per share excluding restructuring charges are projected in the range of 67 cents to 71 cents. Net sales are expected to increase between 5%–7% in constant currency.
Recommendation
Headquartered in New York, Estee Lauder engages in the manufacture and sale of skin care, makeup, fragrance and hair care products and carries a Zacks Rank #3 (Hold). Other stocks in the consumer staples sector worth considering are Green Mountain Coffee Roasters Inc. (GMCR), Kraft Foods Group Inc. (KRFT) and Pilgrims Pride Corporation (PPC). While GMCR carry a Zacks Rank #1 (Strong Buy), PPC and KRFT has a Zacks Rank #2 (Buy).
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