Estee Lauder Companies Inc. (EL) posted robust results for the first quarter 2012. Quarterly earnings climbed 45% to $1.41 per share in the first quarter, beating the Zacks Consensus Estimate of $1.18 by 19.5%.
The earnings also exceeded management’s guidance of $1.10 to $1.20 per share, anticipated in the fourth quarter 2011. Additionally, earnings leapt from $.02 per diluted common share postedin fiscal 2011 first quarter.
Strong sales, especially in Europe, the Middle East & Africa, and benefits from the initiatives that have been implemented helped the company log the profits. 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 second quarter of 2012, earnings per share including restructuring charges are projected between $1.83 and $1.98, while excluding restructuring charges it is projected between $1.85 and $2.00. For fiscal 2012, earnings including restructuring charges are projected between $4.12 and $4.37, while it is projected between $4.25 and $4.45, excluding restructuring charges.
Net Sales
Net sales for the quarter grew 18.0% year-over-year to $2.48 billion from $2.09 billion in the prior-year quarter. Additionally, sales exceeded the Zacks Consensus Revenue Estimates of $2.4 billion.
The top-line growth was primarily driven by strong sales gains in major product categories across geographies, reflecting growth in higher-margin product launches and effective advertising spending. While the Travel and Retail segment boosted sales growth, emerging markets along with solid gains in many developed countries also pulled up top-line results in the quarter.
For second quarter 2012, management expects net sales to grow between 8% and 10% in constant currency. The company expects foreign currency translation tohaveminimal impact on net sales. The company holds same expectations for the full year 2012.
Margins
Gross margin went up 170 basis points (bps) to 78.4% in the first quarter of 2011. Though operating expense margin declined 150 bps to 61.0% in the quarter, operating income margin also came down by 320 bps to 17.4%.
Segments
Skin Care product sales rose 25% to $1.1 billion, Makeup sales jumped 17.0% to $928.8 million, Hair Care product sales went up 10.0% to $103.8 million and Fragrance product sales surged 7% to $356.8 million.
Management believes that on a product category basis, in constant currency, skin care and hair care are expected to score the highest increase in sales, followed by makeup and fragrance.
Geographies
Sales in The Americas rose 11.0% to $1.1 billion; in Europe, the Middle East & Africa sales surged 26% to $858.2 million, whereas in the Asia/Pacific region, sales soared 24.0% to $512.4 million.
Management expects that its geographic region net sales growth in constant currency is expected to be led by Europe, the Middle East & Africa, followed by Asia/Pacific and the Americas.
Other Financial Update
Net cash used for operating activities was $36.2 million, compared with $39.1 million in the prior-year period. Estee lauder used operating cash flows primarily for the repurchase of shares of the company’s Class A Common Stock and capital expenditures.
Inventory days at the end of September 30, 2011 were higher compared withSeptember 30, 2010, reflecting incremental inventory to support near-term sales growth and improve service levels.
In connection with its long-term strategic plan, as well as certain on-going initiatives, Estee Lauder realized $44 million in savings during the quarter. Additionally, it expects to realize savings between $30 million and $35 million in the second 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 #3 Rank, which translates into a short-term Hold rating.
