Yahoo Finance Why Is Estee Lauder (EL) Down 9% Since Last Earnings Report?
It has been about a month since the last earnings report for Estee Lauder (EL). Shares have lost about 9% 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 its most recent earnings report in order to get a better handle on the important drivers.
The Estee Lauder Companies Cuts View on Q3 Earnings Miss
The Estee Lauder Companies reported third-quarter fiscal 2023 results, with the top and the bottom line declining year over year. Net sales surpassed the Zacks Consensus Estimate while earnings missed the same.
Results were affected by increased inflation, concerns surrounding the recession and unfavorable currency rates. The company has been witnessing greater volatility in the recovery from the pandemic across Asia travel retail. Management is lowering its organic sales and EPS outlook for fiscal 2023.
Quarter in Detail
The company posted adjusted earnings of 47 cents per share, which lagged the Zacks Consensus Estimate of 49 cents but surpassed our estimate of 43 cents. The bottom line slumped 75% (down 74% at constant currency or cc) year over year. This includes an adverse currency impact of 3% on core international travel retail locations.
Net sales of $3,751 million beat the Zacks Consensus Estimate of $3,716.3 million and our estimate of $3,704.6 million. The metric declined 12% from $4,245 million reported in the year-ago quarter, reflecting the impact of license terminations associated with certain designer fragrances and unfavorable currency rates. Organic net sales declined 8%, mainly owing to declines in Asia travel retail in Hainan and Korea. That said, organic net sales grew in almost all markets, which includes developed markets of the United States, the U.K. and Hong Kong and emerging markets worldwide.
The gross profit came in at $2,592 million, down 20% year over year. The gross margin contracted to 69.1% from 76.6% reported in the year-ago quarter. In constant currency or cc, adjusted operating income slumped 65%, mainly due to reduced net sales and increased cost of sales.
Product-Based Segment Results
Skin Care’s sales were down 20% year over year to $1,922 million. Makeup revenues fell 2% year over year to $1,088 million. In the Fragrance category, revenues were up 1% year over year at $585 million. Hair Care sales totaled $149 million, up 1%.
Regional Results
Sales in the Americas moved up 3% year over year to $1,089 million. Revenues in the EMEA region declined 26% to $1,474 million. In the Asia-Pacific region, sales dropped 1% to $1,192 million.
Other Updates
The company exited the quarter with cash and cash equivalents of $5,531 million, long-term debt of $5,128 million and total equity of $5,877 million. Net cash flow provided by operating activities for the nine months ended Mar 31, 2023, was $1,017 million. The company returned $0.95 billion in cash to shareholders through dividend payouts and share repurchases during the quarter.
During the third quarter of fiscal 2023, The Estee Lauder Companies witnessed continued post-COVID recovery growth with solid organic net sales performance in The Americas and markets across Europe, the Middle East & Africa, excluding travel retail. While it experienced recovery in many markets worldwide, its Asia travel retail business continued to be under pressure by the slower-than-expected recovery from the COVID pandemic. The shipments to duty free retailers were under pressure in Korea due to the transition to post-COVID regulations.
Guidance
For fiscal 2023, management projects net sales to decline in the band of 10-12% year over year, including an unfavorable currency impact. The view includes slower-than-anticipated return to growth across Asia travel retail and the termination of certain license agreements. Organic net sales growth is now anticipated to decline 5-7%, including currency headwinds. Adjusted EPS are expected in the band of $3.29-$3.39, suggesting a 53-55% decline from the year-ago period’s levels. The bottom line is expected to decline 50-51% at cc.
Management anticipates organic net sales to return to growth in the fourth quarter of fiscal 2023, with continued momentum of post-COVID recovery growth in almost every market. However, the adverse impact from the persistent pressures across Asia travel retail is a headwind.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -101.81% due to these changes.
VGM Scores
Currently, Estee Lauder has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. 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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The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report
