Estee Lauder profit blows past expectations

CHICAGO Fri Oct 30, 2009 1:04pm EDT

Related Topics

CHICAGO (Reuters) - Estee Lauder Cos Inc (EL.N) reported a much higher than expected jump in quarterly profit and raised its 2010 forecast as department stores stocked up on its new products and the cosmetics maker cut back on spending.

While the company is gaining market share, it still has a cautious take on the economy and consumer spending ahead of what could be a lackluster holiday season. Estee is also tracking the potential impact of the H1N1 flu on business, particularly for highly profitable travel-related sales.

Estee Lauder is taking steps such as introducing smaller bottles of certain fragrances for $29.50, a $10 reduction from the previous entry price, to attract cost-conscious shoppers, Chief Executive Fabrizio Freda said on a conference call.

"Within the premium space they have great brands, and brands that while higher-priced, are not ultra higher-priced," said JP Morgan analyst John Faucher. "Also, they're doing a great job internationally."

First-quarter sales fell 3.7 percent to $1.83 billion, topping analysts' expectations of $1.82 billion, according to Thomson Reuters I/B/E/S.

Some of the upside came from sales at duty-free shops and growth in Asia. Sales rose 12.4 percent in the Asia/Pacific region, excluding currency fluctuations, while they fell 4.1 percent in the larger Americas region.

Skin care sales increased, driven by new products that were launched with little need for advertising spending. Sales of makeup, perfume and other products declined.

Estee Lauder previously said some holiday season orders came earlier than anticipated, which helped first-quarter results.

Shares of Estee Lauder, known for its namesake line and other brands such as Clinique, were up $3.70 or 9 percent at $44.84 in early afternoon on the New York Stock Exchange. Earlier in the session, the shares touched a 12-month peak of $45.44.

TOPPING EXPECTATIONS

Two weeks ago, Estee Lauder said profit for the first quarter ended on September 30 would come in significantly higher than forecast and that it would raise its annual view.

Estee Lauder earned $140.7 million, or 71 cents per share, in its first quarter, up from $51.1 million, or 26 cents per share, a year earlier.

Excluding restructuring items, Estee Lauder earned 85 cents per share. In August, it had forecast a profit of 23 to 30 cents per share. Analysts on average were expecting 34 cents.

"While satisfying, these strong results should not mask the challenges and uncertainties we still see in the global economic environment," Freda said.

Estee Lauder benefited from a number of items unique to the quarter, such as strong sales of new items such as Advanced Night Repair Synchronized Recovery Complex product, which was not backed by advertising spending, analysts noted.

"Future quarters won't be characterized by all the good one-time things that happened in this one," said BMO Capital Markets analyst Connie Maneaty.

The company now expects to earn $1.95 to $2.10 per share this year, up from its August forecast of $1.55 to $1.70. Analysts on average had forecast $1.79.

"I would argue that the guidance seems a little conservative unless something does in fact go wrong," said Faucher.

The travel-related business, which includes sales in airport shops, rang up about 9 percent of sales in the quarter, up from their historical level of about 7 percent. Such sales account for about 20 percent of Estee Lauder's profit, Chief Financial Officer Richard Kunes said on a conference call.

The results came a day after cosmetics makers such as Avon Products Inc (AVP.N), Elizabeth Arden Inc (RDEN.O) and Revlon Inc (REV.N) posted a mixed bag of quarterly results.

Estee Lauder said second-quarter sales should be flat to up 3 percent in constant currency, with earnings of 80 to 87 cents per share before restructuring charges. Analysts were looking for a profit of 85 cents.

The company still expects fiscal 2010 sales to be flat to up 2 percent in constant currency.

"It's prudent of them to be conservative on the sales line, for sure," said Maneaty. "Once we get past the flu season and as the economy picks up I think a measure of optimism can work its way into sales, but it's too soon to call it now."

(Reporting by Jessica Wohl; Editing by Lisa Von Ahn and Matthew Lewis)

FILED UNDER: