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Estee Lauder (EL) Down 3.2% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Estee Lauder (EL - Free Report) . Shares have lost about 3.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Estee Lauder due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Estee Lauder Q4 Earnings Top, Asia Travel Retail Sluggish
Estee Lauder reported fourth-quarter fiscal 2024 results, wherein the top and bottom lines increased year over year and beat the respective Zacks Consensus Estimate even amid a tough landscape. For fiscal 2025, management expects continued sluggishness in the prestige beauty segment in China, mainly due to ongoing weak consumer sentiment. In other areas of the business, the company plans to deliver improved performance across both developed and emerging markets.
Quarter in Detail
The company posted adjusted earnings of 64 cents per share, which surpassed the Zacks Consensus Estimate of 25 cents. The bottom line increased significantly from earnings of 7 cents reported in the year-ago quarter. Adjusted EPS was 67 cents at constant currency or cc.
Net sales of $3,871 million surpassed the Zacks Consensus Estimate of $3,833 million. The top line advanced 7% year over year despite sluggishness in core business areas, especially mainland China, Asia travel retail and North America. Organic net sales rose 8%, courtesy of increases in all product categories, led by Skin Care, which was backed by EL’s global travel retail business. The growth in organic net sales also shows strength across markets in the EMEA, offset by declines in the Americas and Asia/Pacific.
Skin Care’s sales were up 13% year over year to $2,035 million. Makeup revenues remained flat year over year at $1,105 million. In the Fragrance category, revenues of $539 million dipped 1% from the year-ago quarter’s figure. Hair Care sales totaled $165 million, up 1% year over year.
Sales in the Americas fell 5% year over year at $1,014 million, resulting from company-specific hurdles, an intensified competitive landscape and a general slowdown in prestige beauty growth in North America. Revenues in the EMEA region grew 32% to $1,652 million, mainly driven by the Makeup category. In the Asia-Pacific region, sales tumbled 7% to $1,205 million, largely due to weakness in mainland China.
The gross profit came in at $2,778 million, up 14% year over year. The gross margin came in at 71.8%, up from 67.8% reported in the year-ago quarter. The adjusted operating income came in at $349 million, up significantly from $71 million reported in the year-ago period. The operating income margin soared to around 9% from nearly 2% reported in the year-ago quarter.
Other Updates
The Estee Lauder Companies exited the quarter with cash and cash equivalents of $3,395 million, long-term debt of $7,267 million and total equity of $5,314 million. The net cash flow provided by operating activities for the 12 months ended Jun 30, 2024 was $2.36 billion. Capital expenditures during this time amounted to $0.92 billion. For fiscal 2025, net cash flow from operating activities is likely to be in the band of $1.8-$2.0 billion. Capital expenditures are expected to be nearly 5%-5.5% of the forecasted sales. The Estee Lauder Companies acquired the multi-brand company DECIEM Beauty Group Inc. in May 2024.
Fiscal 2025 Outlook
Management anticipates global prestige beauty growth of 2 in fiscal 2025, driven by sustained strength across many developed and emerging markets worldwide. However, this growth will be moderated by more subdued performance in key markets like North America and offset by continued declines in mainland China and Asia travel retail, where consumer sentiment and conversion rates remain low. For fiscal 2026, the company expects global prestige beauty to regain momentum, returning to historical mid-single-digit growth. For fiscal 2025, the company projects a more restrained performance compared to the industry average, largely due to its substantial business presence in mainland China and Asia travel retail. Nevertheless, EL anticipates accelerated net sales growth in other regions, fueled by strategic initiatives aimed at revitalizing Skin Care, leveraging the growth drivers of high-end Fragrance, rapidly capitalizing on successful channels, launching innovative and accretive new products and enhancing precision marketing capabilities. Additionally, management is carefully monitoring potential risks, such as retailer destocking, which may be influenced by factors like weak consumer sentiment, causing ongoing declines in the prestige beauty market in mainland China and Asia travel retail. Additionally, changes in traveler behavior, with more people spending on experiences instead of products, are affecting Asia travel retail. The company also faces the challenge of adapting to shifts in sales channels and navigating tough competition, particularly as the prestige beauty market slows down in North America.
All said, for fiscal 2025, management projects net sales and organic sales growth in the range of 1% decrease to 2% growth. The adjusted operating margin for the fiscal is envisioned in the band of 11-11.5%, including gains from PRGP. Adjusted EPS is expected to grow 7-5% to the $2.78-$2.98 band at cc.
For the first quarter of fiscal 2025, The Estee Lauder Companies anticipates reported and organic net sales to decline 5-3% year over year. Adjusted EPS, on a cc basis, is expected to slump 89-17% to 1-9 cents.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -84.39% due to these changes.
VGM Scores
Currently, Estee Lauder has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Estee Lauder has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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A month has gone by since the last earnings report for Estee Lauder (EL - Free Report) . Shares have lost about 3.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Estee Lauder due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Estee Lauder Q4 Earnings Top, Asia Travel Retail Sluggish
Estee Lauder reported fourth-quarter fiscal 2024 results, wherein the top and bottom lines increased year over year and beat the respective Zacks Consensus Estimate even amid a tough landscape. For fiscal 2025, management expects continued sluggishness in the prestige beauty segment in China, mainly due to ongoing weak consumer sentiment. In other areas of the business, the company plans to deliver improved performance across both developed and emerging markets.
Quarter in Detail
The company posted adjusted earnings of 64 cents per share, which surpassed the Zacks Consensus Estimate of 25 cents. The bottom line increased significantly from earnings of 7 cents reported in the year-ago quarter. Adjusted EPS was 67 cents at constant currency or cc.
Net sales of $3,871 million surpassed the Zacks Consensus Estimate of $3,833 million. The top line advanced 7% year over year despite sluggishness in core business areas, especially mainland China, Asia travel retail and North America. Organic net sales rose 8%, courtesy of increases in all product categories, led by Skin Care, which was backed by EL’s global travel retail business. The growth in organic net sales also shows strength across markets in the EMEA, offset by declines in the Americas and Asia/Pacific.
Skin Care’s sales were up 13% year over year to $2,035 million. Makeup revenues remained flat year over year at $1,105 million. In the Fragrance category, revenues of $539 million dipped 1% from the year-ago quarter’s figure. Hair Care sales totaled $165 million, up 1% year over year.
Sales in the Americas fell 5% year over year at $1,014 million, resulting from company-specific hurdles, an intensified competitive landscape and a general slowdown in prestige beauty growth in North America. Revenues in the EMEA region grew 32% to $1,652 million, mainly driven by the Makeup category. In the Asia-Pacific region, sales tumbled 7% to $1,205 million, largely due to weakness in mainland China.
The gross profit came in at $2,778 million, up 14% year over year. The gross margin came in at 71.8%, up from 67.8% reported in the year-ago quarter. The adjusted operating income came in at $349 million, up significantly from $71 million reported in the year-ago period. The operating income margin soared to around 9% from nearly 2% reported in the year-ago quarter.
Other Updates
The Estee Lauder Companies exited the quarter with cash and cash equivalents of $3,395 million, long-term debt of $7,267 million and total equity of $5,314 million. The net cash flow provided by operating activities for the 12 months ended Jun 30, 2024 was $2.36 billion. Capital expenditures during this time amounted to $0.92 billion. For fiscal 2025, net cash flow from operating activities is likely to be in the band of $1.8-$2.0 billion. Capital expenditures are expected to be nearly 5%-5.5% of the forecasted sales. The Estee Lauder Companies acquired the multi-brand company DECIEM Beauty Group Inc. in May 2024.
Fiscal 2025 Outlook
Management anticipates global prestige beauty growth of 2 in fiscal 2025, driven by sustained strength across many developed and emerging markets worldwide. However, this growth will be moderated by more subdued performance in key markets like North America and offset by continued declines in mainland China and Asia travel retail, where consumer sentiment and conversion rates remain low. For fiscal 2026, the company expects global prestige beauty to regain momentum, returning to historical mid-single-digit growth. For fiscal 2025, the company projects a more restrained performance compared to the industry average, largely due to its substantial business presence in mainland China and Asia travel retail. Nevertheless, EL anticipates accelerated net sales growth in other regions, fueled by strategic initiatives aimed at revitalizing Skin Care, leveraging the growth drivers of high-end Fragrance, rapidly capitalizing on successful channels, launching innovative and accretive new products and enhancing precision marketing capabilities. Additionally, management is carefully monitoring potential risks, such as retailer destocking, which may be influenced by factors like weak consumer sentiment, causing ongoing declines in the prestige beauty market in mainland China and Asia travel retail. Additionally, changes in traveler behavior, with more people spending on experiences instead of products, are affecting Asia travel retail. The company also faces the challenge of adapting to shifts in sales channels and navigating tough competition, particularly as the prestige beauty market slows down in North America.
All said, for fiscal 2025, management projects net sales and organic sales growth in the range of 1% decrease to 2% growth. The adjusted operating margin for the fiscal is envisioned in the band of 11-11.5%, including gains from PRGP. Adjusted EPS is expected to grow 7-5% to the $2.78-$2.98 band at cc.
For the first quarter of fiscal 2025, The Estee Lauder Companies anticipates reported and organic net sales to decline 5-3% year over year. Adjusted EPS, on a cc basis, is expected to slump 89-17% to 1-9 cents.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -84.39% due to these changes.
VGM Scores
Currently, Estee Lauder has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Estee Lauder has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.