Estee Lauder (EL) Down 10% Since Last Earnings Report: Can It Recover?

It has been about a month since Estee Lauder (EL) last reported earnings. The stock lost about 10% in that time, underperforming the S&P 500.

Will the recent negative trend continue until 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 company’s most recent earnings report in order to better understand the important catalysts.

Estee Lauder’s third-quarter earnings beat estimates, sales grow

The Estee Lauder Companies reported third-quarter fiscal 2024 results, with top and bottom lines increasing year over year. Quarterly net sales and earnings exceeded the Zacks Consensus Estimate. Asian travel retail returned to organic sales growth as developed and emerging markets in Asia Pacific, Europe, the Middle East and Africa (EMEA) and Latin America further contributed to positive results. Given macroeconomic challenges – including weakening overall prestige in mainland China and geopolitical volatility in certain regions – management is lowering its organic net sales forecast for fiscal year 2024. The company is raising and tightening its adjusted EPS forecast for this year.

Quarter in detail

The company reported adjusted earnings per share of 97 cents, which topped the Zacks Consensus Estimate of 48 cents. The bottom line was up significantly from earnings of 47 cents reported in the year-ago quarter. Adjusted EPS was 1.02 cents on a constant currency or cc basis.

Net sales of $3,940 million surpassed the Zacks Consensus Estimate of $3,924.8 million. This metric increased 5% from $3,751 million reported in the year-ago quarter. Organic net sales increased 6%, primarily driven by double-digit growth in EMEA, driven by improved sales in the Asian travel retail segment. The growth in travel retail sales in Asia can be attributed to, among other things, higher shipment volumes due to improved retail sales trends and retailer inventory levels. The increase in organic net sales also shows strength in developed and emerging markets in Asia Pacific, the Americas and EMEA. The company saw net sales growth in almost all product categories, with skin care products emerging as the leader.

Gross profit was $2,833 million, up 9% year over year. Gross margin was 71.9%, compared to 69.1% recorded in the same quarter last year.

Operating income was $531 million, up 79% from the $297 million reported in the same period last year. Operating profit margin increased to 13.5% from 7.9% recorded in the year-ago quarter.

The story continues

Product-based segment performance

Skin Care sales increased 8% year over year to $2,060 million. Makeup revenue increased 3% year-over-year to $1,136 million. In the fragrance category, revenue of $575 million was comparable to the prior-year quarter. Total hair care sales were $143 million, down 3% year-over-year.

Regional results

Sales in the Americas increased by 3% year over year and amounted to USD 1,117 million. Revenues in the EMEA region increased by 12% to USD 1,647 million. In the Asia-Pacific region, sales decreased 1% to $1,176 million.

Other updates

The company ended the quarter with cash and cash equivalents of $3,701 million, long-term debt of $7,265 million and total equity of $5,744 million.

Net cash flow from operations for the nine months ended March 31, 2024 was $1,471 million. Capital expenditures during this time amounted to $702 million. The company returned $710 million to shareholders through dividend payments.

Fiscal forecasts for 2024

For fiscal year 2024, management is currently forecasting a 2% to 3% decline in net sales. The company had previously expected this rate to range from a 1% decline to a 1% increase. Organic net sales are expected to decline by 1-2%. Organic net sales were previously expected to be in the range of 1% decline and 1% growth for fiscal 2024.

Adjusted EPS is expected in the range of $2.14-2.24, suggesting a decline from the $3.46 reported in fiscal 2023. Adjusted EPS was previously expected to be in the range of $2.08-2.23. Adjusted EPS is expected to decline 33% to 36% at cc, compared to the 34% to 38% decline previously forecast. The company’s guidelines assume an annual effective tax rate of nearly 35%.

Fourth Quarter Guidance

The Estee Lauder Companies expects reported net sales to increase 5% to 9% year-over-year in the fourth quarter of fiscal 2024. Organic net sales are likely to grow 6-10% this quarter. Reported EPS is expected to range from 11 cents to 22 cents. Adjusted EPS on a per cc basis is expected to increase by more than 100% to 19-29 cents per cc.

How have estimates changed since then?

It turns out that estimate revisions have been trending downward over the past month.

As a result of these changes, the consensus estimate moved by -67.59%.

VGM results

Estee Lauder currently has an average Growth Score of C, although it lags well behind its Momentum Score of F. Plotting a somewhat similar path, the stock is rated D for value, putting it in the bottom 40% for this investment strategy.

Overall, the stock has a Total VGM Score of D. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Estee Lauder carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Estee Lauder is part of the Zacks Beauty industry. Shares in the same industry Helen of Troy (HELE) have gained 10.4% over the past month. More than a month ago, the company published its results for the quarter ended February 2024.

Helen of Troy reported revenues of $489.2 million in the most recent quarter, representing a +1% year-over-year change. EPS of $2.45 for the same period compared to $2.01 a year ago.

Helen of Troy is expected to report earnings per share of $1.59 for the current quarter, which would represent a year-over-year change of -18%. Over the past 30 days, the Zacks Consensus Estimate has moved -6.8%.

Helen of Troy carries a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM rating of B.

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