Estee Lauder: Poised For Long-Term Growth

Aug.16.14 | About: The Estée (EL)


Estee Lauder reported earnings Friday. The company saw massive growth year over year, but missed on analyst estimates.

News of the company’s earnings pushed the stock lower during the day before it rebound to roughly even by market close.

Estee Lauder is exhibiting a pattern of growth in fundamentals and its strategic initiatives are aligned towards maximizing its markets efficiently, making it a good candidate for long term growth.

Estee Lauder (EL) can't catch a break. The company's earnings on Friday came in strong over the same quarter last year, but it missed analyst estimates. The news caused the company's share price to dip to a day low of $74.50 from an open of $75.44. The stock's share price ultimately recovered to close the day with a small increase at $76.16.

But there is still reason to be encouraged about the $29.15 billion market cap company.


Consensus estimates put Estee Lauder's one-year price target at $83.05 and the company pays a 1.1% dividend yield. If Estee Lauder makes good on these numbers, an investor buying in today could get a 10% return on his investment. In addition, the company is experiencing a pattern of growth while implementing strategic and efficient initiatives to better manage that growth. Add to this a strong growth forecast in its industry and Estee Lauder is positioned well to deliver long-term value.


Estee Lauder posted Q4 earnings of 45 cents per share, excluding restructuring charges, representing a whopping 83% increase over the same quarter last year - but that was still grossly short from analyst estimates of 56 cents per share.

"Estee Lauder's fiscal 2014 earnings of $2.95 cents per share (excluding restructuring charges) came in above management's guided range of $2.86 to $2.90. Earnings surpassed the prior-year results by 12% but missed the Zacks Consensus Estimate of $3.05 by 3.3%," explains Zacks. "Results excluded the impact of charges, principally related to the Venezuela remeasurement of exchange rate. Including the effect of the remeasurement, Estee Lauder reported earnings per share of $3.06."

In addition to an improvement in earnings, Estee Lauder saw an increase in each of its product categories. In fiscal 2014, the company's fragrance and makeup line grew 9% year over year, thanks largely to sales of marquee brands like Clinique and its makeup artist line of cosmetics, and its Tom Ford and Joe Malone fragrance brands. Estee Lauder's skincare line, which includes La Mer, saw similar growth, rising 8% year over year. The company's hair care line, which includes Aveda products, saw a 5% growth while other products grew roughly 1%.

Estee Lauder's sales by geographic region was fairly evenly distributed. The company saw a 7% increase in revenue year over year in the Americas, while sales in Europe, the Middle East, and Africa as well as its Asia division, grew 9% year over year. Estee Lauder's operating income saw even bolder increases. Excluding the effect of shift of orders, the company's operating income rose 27% year over year in America, 15% year over year in Europe, the Middle East, and Africa, and 14% year over year in Asia.


Estee Lauder is expecting its fiscal first-quarter earnings to be between 72 cents and 76 cents per share. Analysts are expecting 72 per share for the quarter. Estee Lauder expects its earnings per share to fall between $3.10 and $3.20 per share, while consensus estimates put that figure at $3.17 per share.

At this rate, Estee Lauder's forward price to earnings ratio is around 24 times its fiscal 2015 earnings, while its industry is at 25 times its earnings. This is pretty spot on given its earnings projections. While both Estee Lauder and its industry has posted quarterly revenue growth of 11%, going forward analysts expect an average 12.14% growth per annum over the next five years for Estee Lauder and 14.89% for its industry.


That said, there are reasons to be encouraged about the stock. Estee Lauder's revenue growth is promising. The company's revenues are exhibiting a pattern of growth - its revenues were up 83% this quarter over the same quarter last year, while revenues rose by 11.3% last quarter compared to its respective quarter last year. And, these advances are being felt on Estee Lauder's bottom line. This quarter, the company bested the same quarter last year's earnings by 12% and last quarter was an increase of 20% over the same quarter prior.

Estee Lauder's increases in operating income are also encouraging as are its sales increases. With advances across product offerings and geographic locations being relatively equal with one another, respectively, it appears the company is effectively applying its strategic initiatives.

The company completed its rollout of its Strategic Modern Initiative (SMI) in July 2014. This initiative helps Estee Lauder to establish a centralized data center of the products the company offers and intends to offer as well as an integrated sales analysis system, inventory management, and product replenishment system.

According to Estee Lauder's 2013 Annual Report:

"As part of SMI, we anticipate the continued migration of our operations to SAP-based technologies ("SAP") with the majority of our locations being enabled through calendar 2014. In parallel with our SAP deployment, we are creating a more focused global information technology organization utilizing industry standard processes. We are also taking this opportunity to rebalance our information technology resources to better align with our global business growth. We plan to continue to explore opportunities to create a more efficient organization."

This efficiency will work with industry growth to drive sales going forward. Looking ahead, Estee Lauder is expecting to see growth thanks to a 3% to 4% estimated growth in the global prestige beauty sector and continued demand in high-growth channels and emerging markets.


Estee Lauder is a company in recovery but it is moving well in the right direction. Its fundamentals indicate a strong pattern towards growth, while its growth in revenue demonstrates success in its strategic focuses. Adding its SMI program to the mix along with strength in its industry should help propel Estee Lauder to strong growth going forward.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.