Hong Kong
The Estée Lauder Companies Achieves Outstanding Fiscal 2019 Second Quarter Results
Press Release, Feb 5, 2019
Net Sales Increased 7% and Diluted EPS increased to
Net Sales Increased 11% and Adjusted Diluted EPS Rose 25% in Constant Currency Before Impact of New Revenue Accounting Standard
Company Raises Full Year Guidance
Net earnings rose to
Fabrizio Freda, President and Chief Executive Officer, said, “We delivered an excellent performance in our fiscal second quarter. Importantly, this was our eighth consecutive quarter of impressive net sales growth that met or exceeded our long-term goal, all while navigating many global macro issues. Our sustained progress is the result of our multiple engines of growth strategy, and demonstrates our agility in moving resources to the best global opportunities. Our earnings per share in the second quarter grew more than twice the rate of net sales in constant currency, delivering an impressive first-half performance. With confidence in our continued ability to execute effectively and grow share in prestige beauty, while simultaneously making strategic investments in our business, we are raising our net sales and EPS guidance for the year.
“Our strongest growth engines this quarter included the skin care
category globally, the
Freda added, “Despite a volatile and challenging backdrop, we are optimistic about our Company’s long-term outlook. We are very well-positioned to build share in global prestige beauty. Leveraging savings generated by our Leading Beauty Forward initiative, we plan to increase our investments during the next six months behind our successful innovations, high-quality products, compelling digital advertising and effective commercial execution, while also enhancing our capabilities to strengthen our industry leadership and deliver long-term profitable growth.”
Adjusted diluted earnings per common share excludes restructuring and
other charges, goodwill and other intangible asset impairments, changes
in contingent consideration and the finalization of provisional charges
for the impact of the
DOWNLOAD THE PRESS RELEASE PDF(310KB)
Reconciliation between GAAP and Non-GAAP | ||||||||||||||||||
Three Months Ended December 31, 2018 |
Three Months Ended |
|||||||||||||||||
Net Sales Growth | Diluted EPS Growth |
Diluted Earnings Per |
||||||||||||||||
(Unaudited) |
Reported |
Constant |
Reported |
Constant |
2018 | 2017 | ||||||||||||
As Reported Results | 7 | % | 9 | % | 100+ | % | 100+ | % | $ | 1.55 | $ | .33 | ||||||
Restructuring and other charges | .08 | .15 | ||||||||||||||||
Contingent consideration | - | - | ||||||||||||||||
Intangible asset impairments | .09 | - | ||||||||||||||||
Transition Tax resulting from the TCJA | - | .86 | ||||||||||||||||
Remeasurement of |
||||||||||||||||||
TCJA enactment date |
.02 | .14 | ||||||||||||||||
Net deferred tax liability related to foreign withholding |
||||||||||||||||||
taxes on certain foreign earnings resulting from the TCJA |
- | .05 | ||||||||||||||||
Non-GAAP | 9 | % | 18 | % |
$ |
1.74 | $ | 1.52 | ||||||||||
Impact of adoption of ASC 606 | 2 | % | .11 | |||||||||||||||
Non-GAAP, excluding impact of adoption of ASC 606 | 11 | % | 1.86 | |||||||||||||||
Impact of foreign currency on earnings per share | .05 | |||||||||||||||||
Non-GAAP, constant currency earnings per share, |
||||||||||||||||||
excluding the impact of adoption of ASC 606 |
25 | % | $ | 1.91 | ||||||||||||||
(1) Represents GAAP | ||||||||||||||||||
Amounts may not foot due to rounding. | ||||||||||||||||||
Net sales and operating income in the Company’s product categories and
regions outside of
Results by Product Category | ||||||||||||||||||||||||||
Three Months Ended December 31 | ||||||||||||||||||||||||||
Net Sales | Percent Change |
Operating Income |
Percent |
|||||||||||||||||||||||
(Unaudited; $ in millions) | 2018 | 2017 |
Reported |
Constant |
2018 | 2017 |
Reported |
|||||||||||||||||||
Skin Care | $ | 1,732 | $ | 1,494 | 16 | % | 18 | % | $ | 565 | $ | 453 | 25 | % | ||||||||||||
Makeup | 1,560 | 1,515 | 3 | 5 | 138 | 219 | (37 | ) | ||||||||||||||||||
Fragrance | 537 | 565 | (5 | ) | (2 | ) | 84 | 85 | (1 | ) | ||||||||||||||||
Hair Care | 154 | 144 | 7 | 8 | 15 | 17 | (12 | ) | ||||||||||||||||||
Other | 22 | 26 | (15 | ) | (15 | ) | 4 | 5 | (20 | ) | ||||||||||||||||
Subtotal | 4,005 | 3,744 | 7 | 9 | 806 | 779 | 3 | |||||||||||||||||||
Charges associated with |
||||||||||||||||||||||||||
restructuring and other activities |
- | - | (35 | ) | (69 | ) | 49 | |||||||||||||||||||
Total | $ | 4,005 | $ | 3,744 | 7 | % | 9 | % | $ | 771 | $ | 710 | 9 | % | ||||||||||||
The change in total net sales was unfavorably impacted by the adoption of ASC 606, as previously mentioned. Adjusting for the impact of ASC 606, total net sales in constant currency increased 11% and reported operating income increased 16%.
Skin Care
-
The adoption of ASC 606 reduced reported net sales growth by
$48 million , or 3%, and reduced operating income growth by$33 million , or 7%. - Skin care net sales grew across most geographies, channels and brands, particularly Estée Lauder, La Mer and Origins. Clinique’s skin care net sales also grew globally in constant currency.
- The Estée Lauder brand delivered net sales growth in every region and most channels. The double-digit increase reflected continued strength in its existing product franchises, supported by successful innovation such as Advanced Night Repair Eye Supercharged Complex.
- Double-digit growth at La Mer was also broad-based, with net sales increasing across regions and channels, driven by higher net sales of existing products. Additionally, incremental net sales from new product launches, including The Treatment Lotion Hydrating Mask and The Luminous Lifting Cushion Foundation also contributed to La Mer’s growth.
- Operating income increased sharply, reflecting higher net sales, primarily at Estée Lauder and La Mer.
Makeup
-
The adoption of ASC 606 reduced reported net sales growth by
$14 million , or 1%, and reduced operating income growth by$18 million , or 8%. - Growth in makeup was primarily driven by strong increases from Estée Lauder, M•A•C, Tom Ford Beauty and BECCA. These increases were partially offset by lower net sales from Clinique and Smashbox.
- Estée Lauder generated solid double-digit growth, driven by strength from its Double Wear line of products.
-
M•A•C’s strong performance was led by double-digit growth across
Asia/Pacific , theMiddle East , includingTurkey , andItaly . - Net sales from Tom Ford Beauty increased double-digits, primarily driven by its lip color and eye shadow franchises.
- BECCA’s growth was largely driven by the BFF Collection and the Ultimate Lipstick Love new product launches.
-
Makeup operating income declined, reflecting planned investments at
Too Faced to support new and existing products, as well as
international expansion. Lower makeup net sales from Clinique and
Smashbox also contributed to the decline, as did
$38 million of goodwill and other intangible asset impairments related to Smashbox. This decline was partially offset by increases at Estée Lauder, Tom Ford Beauty and M•A•C, primarily due to higher net sales.
Fragrance
-
The adoption of ASC 606 reduced reported net sales growth by
$9 million , or 2%, and reduced operating income by$5 million , or 5%. - The net sales decrease reflected a change in promotional strategy for holiday by Estée Lauder and lower net sales of certain designer fragrances. The decreases were mostly offset by growth from our luxury and artisanal fragrances, including Jo Malone London, Le Labo, Tom Ford Beauty and By Kilian.
- Jo Malone London’s net sales increase primarily reflected the launch of holiday collections and expanded targeted consumer reach.
- Increased net sales from Le Labo, Tom Ford Beauty and By Kilian reflected expanded targeted consumer reach and new product launches.
- Fragrance operating income declined in line with net sales.
Hair Care
- Hair care net sales increased, primarily reflecting higher net sales from Aveda, due to continued growth from recent launches and online.
- Hair care operating income declined, as higher net sales from Aveda were offset by strategic advertising investments to support product launches, digital outreach and the brand’s innovative social media and digital campaign activity.
Results by Geographic Region | |||||||||||||||||||||||||||
Three Months Ended December 31 | |||||||||||||||||||||||||||
Net Sales | Percent Change |
Operating Income |
Percent |
||||||||||||||||||||||||
(Unaudited; $ in millions) | 2018 | 2017 |
Reported |
Constant |
2018 | 2017 |
Reported |
||||||||||||||||||||
The |
$ | 1,218 | $ | 1,308 | (7 | ) | % | (6 | ) | % | $ | (61 | ) | $ | 98 | > | (100 | ) | % | ||||||||
1,767 | 1,562 | 13 | 16 | 628 | 463 | 36 | |||||||||||||||||||||
1,020 | 874 | 17 | 20 | 239 | 218 | 10 | |||||||||||||||||||||
Subtotal | 4,005 | 3,744 | 7 | 9 | 806 | 779 | 3 | ||||||||||||||||||||
Charges associated with |
|||||||||||||||||||||||||||
restructuring and other activities |
- | - | (35 | ) | (69 | ) | 49 | ||||||||||||||||||||
Total | $ | 4,005 | $ | 3,744 | 7 | % | 9 | % | $ | 771 | $ | 710 | 9 | % | |||||||||||||
The change in total net sales was unfavorably impacted by the adoption of ASC 606, as previously mentioned. Adjusting for the impact of ASC 606, total net sales in constant currency increased 11% and reported operating income increased 16%.
The
-
The adoption of ASC 606 reduced reported net sales growth by
$39 million , or 3%, and reduced operating income by$21 million . The unfavorable impact of foreign currency translation reduced reported net sales by 1%. -
Net sales in The
Americas region declined 3%, excluding the impacts from the adoption of ASC 606 and currency translation. - This was the final full quarter of net sales to Bon Ton in the prior year.
-
Net sales grew double-digits in online and single digits in
specialty-multi in
North America . -
Operating income in The
Americas decreased, primarily reflecting lower sales, the impairment of goodwill and other intangible assets related to Smashbox and investments in technology.
-
The adoption of ASC 606 decreased reported net sales growth by
$4 million , or less than 1%, and decreased operating income growth by$7 million , or 2%. The unfavorable impact of foreign currency translation reduced reported net sales growth by 3%. -
The Company generated strong net sales growth in the region, both on a
reported basis and in constant currency, primarily due to strong
double-digit net sales growth in travel retail, and the
Middle East , includingTurkey . Net sales inRussia also grew double-digits, in constant currency. This growth was partially offset by slightly lower net sales in theUnited Kingdom . -
The emerging markets in the region were negatively impacted by foreign
currency translation. Excluding this impact, the net sales in most of
the countries reflected strong growth and two-thirds of them delivered
double-digit increases. The
Middle East growth was primarily driven by M•A•C. - In travel retail, strong double-digit net sales growth was broad-based across brands, led by Estée Lauder, La Mer, M•A•C, Tom Ford and Origins. Growth was also realized across many geographies and reflected increases in international passenger traffic, improved conversion, successful innovation and expanded targeted consumer reach.
-
Net sales performance in the
United Kingdom reflected reduced consumer confidence ahead of Brexit, House of Fraser door closures and lower traffic across brick-and-mortar stores that was mostly offset by higher online net sales. -
Operating income increased, primarily due to strong double-digit
growth in travel retail and, to a lesser extent, many countries
throughout the region, partially offset by lower results in the
United Kingdom .
-
The adoption of ASC 606 reduced reported net sales growth by
$24 million , or 3%, and reduced operating income growth by$26 million , or 12%. The unfavorable impact of foreign currency translation reduced reported net sales by 3%. -
The Company delivered another quarter of strong double-digit net sales
increases in
Asia/Pacific , both on a reported basis and in constant currency. The growth was broad-based, with nearly half of the markets in the region growing double digits. China ,Hong Kong andJapan continued to deliver strong growth, andKorea net sales accelerated. Prestige beauty inChina accelerated and the Company continued to build share.- The Company generated double-digit net sales growth in virtually every major product category and channel.
- Operating income increased, primarily due to higher net sales.
Six-Month Results
-
For the six months ended December 31, 2018, the Company reported net
sales of
$7.53 billion , a 7% increase compared with$7.02 billion in the prior-year period. -
Net earnings were
$1.07 billion , and diluted earnings per share was$2.88 . In the prior-year six months, the Company reported net earnings of$550 million and diluted earnings per share of$1.46 .
-
During the six-months ended December 31, 2018, the Company recorded
restructuring and other charges, goodwill and other intangible asset
impairments and changes in contingent consideration combined of
$111 million ($94 million after tax), equal to$.25 per diluted share. The prior-year period results include restructuring and other charges and changes in contingent consideration combined of$110 million ($83 million after tax), equal to$.22 per share, as detailed in the table on page 15. -
Adjusting for restructuring and other charges and adjustments, diluted
net earnings per common share for the six months ended December 31,
2018 was
$3.15 , and in constant currency rose 18%. For the six months ended December 31, 2018, the negative impact of foreign currency translation on diluted net earnings per common share was$.07 . -
The adoption of ASC 606 reduced reported net sales growth by
$134 million , or 2%, decreased operating income growth by$85 million , or 7%, and decreased diluted earnings per share by$.18 or 7%. - Adjusting for restructuring and other charges and adjustments, and excluding the impact of currency translation and the adoption of ASC 606, net sales increased 11% and diluted earnings per share rose 25%.
Cash Flows from Operating Activities
-
For the six months ended December 31, 2018, net cash flows provided by
operating activities were
$1.27 billion , compared with$1.44 billion in the prior year. - The decline primarily reflected higher international inventory levels to support our growth and timing of payables and receivables that was mostly offset by an increase in earnings before taxes.
Outlook for Fiscal 2019 Third Quarter and Full Year
The Company continues to see strong consumer demand for its high-quality
products and expects to continue to deliver growth at the high end of
its long-term net sales and earnings per share growth targets. We
continue to expect global prestige beauty to grow 5% to 6% during the
fiscal year. The Company expects to grow ahead of the industry. However,
the Company is mindful of risks related to social and political issues,
including the government shutdown in
Given this environment, the Company has reflected the following risks in its outlook:
-
Future moderation of net sales growth in
China and Travel Retail, which we have not experienced to date, to reflect current geopolitical and economic risks. -
Impact of the planned tariff increase in
China in March. -
Announced closings of certain department store locations in
the United States and theUnited Kingdom . -
Some costs associated with the upcoming anticipated Brexit in the
United Kingdom .
Third Quarter Fiscal 2019
Sales Outlook
- Reported net sales are forecasted to increase between 5% and 6% versus the prior-year period, including a 5% impact from currency translation and a 2% benefit from the adoption of ASC 606. Excluding these items, net sales are expected to grow between 8% and 9%.
Earnings per Share Outlook
-
Reported diluted net earnings per common share are projected to be
between
$1.17 and$1.20 . Excluding restructuring and other charges and adjustments, diluted net earnings per common share are projected to be between$1.26 and$1.28 . -
The adoption of ASC 606 is expected to increase diluted net earnings
per common share by approximately
$.18 , reflecting the cumulative impact of revenue deferrals in the first half of the fiscal year that we expect to be recognized in net sales in the second half of the fiscal year. -
Currency exchange rates are volatile and uncertain. Using the December
31, 2018 spot rate, the negative currency impact equates to about
$.09 of diluted earnings per common share. - On a constant currency basis, before restructuring and other charges and adjustments, as well as the impact from the adoption of ASC 606, diluted earnings per common share are expected to increase between 1% and 2%, which includes investments behind strong innovation programs for some of our largest brands and to build capabilities for long-term growth.
-
The Company expects to take charges associated with Leading Beauty
Forward of approximately
$40 million to$45 million , equal to$.08 to$.09 per diluted common share.
Full Year Fiscal 2019
Sales Outlook
- Reported net sales are forecasted to increase between 5% and 6% versus the prior-year period, which includes a 3% impact from currency translation and no impact from the adoption of ASC 606. Excluding these items, net sales are forecasted to grow between 8% and 9%, above the Company’s long-term growth goal of 6% to 8%.
Earnings per Share Outlook
-
Reported diluted net earnings per common share are projected to be
between
$4.55 and$4.67 . Excluding restructuring and other charges and adjustments, diluted net earnings per common share are projected to be between$4.92 and$5.00 . -
The adoption of ASC 606 is expected to reduce diluted net earnings per
common share by approximately
$.01 . -
Currency exchange rates are volatile and uncertain. Using the December
31, 2018 spot rate for the remaining quarters of fiscal 2019, the
negative currency impact equates to about
$.22 of diluted earnings per common share. - On a constant currency basis, before restructuring and other charges and adjustments, as well as the impact of ASC 606, diluted earnings per common share are expected to increase between 14% and 16%. This is well ahead of the Company’s long-term goal of double-digit earnings per common share growth in constant currency. This growth is well ahead of sales growth even while investing during the second half of the year behind strong product innovation programs for some of our largest brands and to build capabilities for long-term growth.
-
The Company expects to take charges associated with previously
approved restructuring and other activities relating to Leading Beauty
Forward in fiscal 2019 of approximately
$155 million to$170 million , equal to$.33 to$.37 per diluted common share. - For the full fiscal year, the Company expects the global effective tax rate to be approximately 22%, before charges associated with the restructuring and other charges and adjustments.
Reconciliation between GAAP and non-GAAP | ||||||||||||||||||||||||
Three Months Ending March 31, 2019 (F) | Three Months March 31 | |||||||||||||||||||||||
Net Sales Growth | Diluted EPS Growth | Diluted Earnings Per Share | ||||||||||||||||||||||
(Unaudited) |
Reported |
Constant |
Reported |
Constant |
2019 (F) | 2018 | ||||||||||||||||||
Forecast / actual results including restructuring |
||||||||||||||||||||||||
and other charges and adjustments |
5%-6% | (1) | 10%-11% | 18%-21% | (1) | 27%-30% | (1) | $ | .99 | (1) | ||||||||||||||
Non-GAAP |
||||||||||||||||||||||||
Restructuring and other charges and adjustments | .08 - .09 | .18 | ||||||||||||||||||||||
Non-GAAP | 8%-9% | $ | 1.17 | |||||||||||||||||||||
Impact of adoption of ASC 606 | (2%) | (2%) |
(.18 |
) |
||||||||||||||||||||
Non-GAAP, excluding impact of adoption of |
||||||||||||||||||||||||
ASC 606 |
3%-4% | (7%)-(6%) | $ | 1.17 | ||||||||||||||||||||
Impact of foreign currency on earnings per share | .09 | |||||||||||||||||||||||
Forecasted constant currency net sales growth |
||||||||||||||||||||||||
and earnings per share |
8%-9% | 1%-2% | $ | 1.17 | ||||||||||||||||||||
Year Ending June 30, 2019 (F) | Twelve Months June 30 | |||||||||||||||||||||||
Net Sales Growth | Diluted EPS Growth | Diluted Earnings Per Share | ||||||||||||||||||||||
(Unaudited) |
Reported |
Constant |
Reported |
Constant |
2019 (F) | 2018 | ||||||||||||||||||
Forecast / actual results including restructuring |
||||||||||||||||||||||||
and other charges and adjustments |
5%-6% | (1) | 8%-9% | 54%-58% | (1) | 62%-66% | (1) | $ | 2.95 | (1) | ||||||||||||||
Non-GAAP |
||||||||||||||||||||||||
Restructuring and other charges and adjustments | .33 - .37 | 1.56 | ||||||||||||||||||||||
Non-GAAP | 9%-11% | $ | 4.51 | |||||||||||||||||||||
Impact of adoption of ASC 606 | - % | - % | .01 | |||||||||||||||||||||
Non-GAAP, excluding impact of adoption of |
||||||||||||||||||||||||
ASC 606 |
5%-6% | 9%-11% | $ | 4.51 | ||||||||||||||||||||
Impact of foreign currency on earnings per share | .22 | |||||||||||||||||||||||
Forecasted constant currency net sales growth |
||||||||||||||||||||||||
and earnings per share |
8%-9% | 14%-16% | $ | 4.51 | ||||||||||||||||||||
(1) Represents GAAP | ||||||||||||||||||||||||
(F) Represents forecast | ||||||||||||||||||||||||
Conference Call The Estée Lauder
Companies will host a conference call at 9:30 a.m. (ET) today, February
5, 2019 to discuss its results. The dial-in number for the call is
888-294-4716 in the
Cautionary Note Regarding Forward-Looking Statements
Statements in this press release, in particular those in “Outlook for Fiscal 2019 Third Quarter and Full Year,” as well as remarks by the CEO and other members of management, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may address our expectations regarding sales, earnings or other future financial performance and liquidity, product introductions, entry into new geographic regions, information technology initiatives, new methods of sale, our long-term strategy, restructuring and other charges and resulting cost savings, and future operations or operating results. These statements may contain words like “expect,” “will,” “will likely result,” “would,” “believe,” “estimate,” “planned,” “plans,” “intends,” “may,” “should,” “could,” “anticipate,” “estimate,” “project,” “projected,” “forecast,” and “forecasted” or similar expressions.
Factors that could cause actual results to differ materially from our forward-looking statements include the following:
(1) | increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses; | |
(2) | the Company’s ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in the Company’s business; | |
(3) | consolidations, restructurings, bankruptcies and reorganizations in the retail industry causing a decrease in the number of stores that sell the Company’s products, an increase in the ownership concentration within the retail industry, ownership of retailers by the Company’s competitors or ownership of competitors by the Company’s customers that are retailers and our inability to collect receivables; | |
(4) | destocking and tighter working capital management by retailers; | |
(5) | the success, or changes in timing or scope, of new product launches and the success, or changes in the timing or the scope, of advertising, sampling and merchandising programs; | |
(6) | shifts in the preferences of consumers as to where and how they shop; | |
(7) |
social, political and economic risks to the Company’s foreign or
domestic manufacturing, distribution and retail operations,
including changes in foreign investment and trade policies and
regulations of the host countries and of |
|
(8) | changes in the laws, regulations and policies (including the interpretations and enforcement thereof) that affect, or will affect, the Company’s business, including those relating to its products or distribution networks, changes in accounting standards, tax laws and regulations, environmental or climate change laws, regulations or accords, trade rules and customs regulations, and the outcome and expense of legal or regulatory proceedings, and any action the Company may take as a result; | |
(9) |
foreign currency fluctuations affecting the Company’s results of
operations and the value of its foreign assets, the relative prices
at which the Company and its foreign competitors sell products in
the same markets and the Company’s operating and manufacturing costs
outside of |
|
(10) | changes in global or local conditions, including those due to the volatility in the global credit and equity markets, natural or man-made disasters, real or perceived epidemics, or energy costs, that could affect consumer purchasing, the willingness or ability of consumers to travel and/or purchase the Company’s products while traveling, the financial strength of the Company’s customers, suppliers or other contract counterparties, the Company’s operations, the cost and availability of capital which the Company may need for new equipment, facilities or acquisitions, the returns that the Company is able to generate on its pension assets and the resulting impact on funding obligations, the cost and availability of raw materials and the assumptions underlying the Company’s critical accounting estimates; | |
(11) | shipment delays, commodity pricing, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities that manufacture the Company’s products or at the Company’s distribution or inventory centers, including disruptions that may be caused by the implementation of information technology initiatives, or by restructurings; | |
(12) | real estate rates and availability, which may affect the Company’s ability to increase or maintain the number of retail locations at which the Company sells its products and the costs associated with the Company’s other facilities; | |
(13) | changes in product mix to products which are less profitable; | |
(14) | the Company’s ability to acquire, develop or implement new information and distribution technologies and initiatives on a timely basis and within the Company’s cost estimates and the Company’s ability to maintain continuous operations of such systems and the security of data and other information that may be stored in such systems or other systems or media; | |
(15) | the Company’s ability to capitalize on opportunities for improved efficiency, such as publicly-announced strategies and restructuring and cost-savings initiatives, and to integrate acquired businesses and realize value therefrom; | |
(16) | consequences attributable to local or international conflicts around the world, as well as from any terrorist action, retaliation and the threat of further action or retaliation; | |
(17) | the timing and impact of acquisitions, investments and divestitures; and | |
(18) | additional factors as described in the Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2018. | |
The Company assumes no responsibility to update forward-looking statements made herein or otherwise.
The Estée Lauder Companies Inc. is one of the world’s leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The Company’s products are sold in over 150 countries and territories under brand names including: Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, Tommy Hilfiger, M•A•C, Kiton, La Mer, Bobbi Brown, Donna Karan New York, DKNY, Aveda, Jo Malone London, Bumble and bumble, Michael Kors, Darphin, Tom Ford, Smashbox, Ermenegildo Zegna, AERIN, Tory Burch, RODIN olio lusso, Le Labo, Editions de Parfums Frédéric Malle, GLAMGLOW, By Kilian, BECCA and Too Faced.
ELC-F
ELC-E
CONSOLIDATED STATEMENTS OF EARNINGS | ||||||||||||||||||||||
(Unaudited; $ in millions, except per share data |
Three Months Ended |
Percent |
Six Months Ended |
Percent |
||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
Net Sales (A) | $ | 4,005 | $ | 3,744 | 7 | % | $ | 7,529 | $ | 7,018 | 7 | % | ||||||||||
Cost of sales (A) | 910 | 753 | 21 | % | 1,733 | 1,464 | 18 | % | ||||||||||||||
Gross Profit | 3,095 | 2,991 | 3 | % | 5,796 | 5,554 | 4 | % | ||||||||||||||
Gross Margin | 77.3 | % | 79.9 | % | 77.0 | % | 79.1 | % | ||||||||||||||
Operating expenses: | ||||||||||||||||||||||
Selling, general and administrative (B) | 2,257 | 2,214 | 2 | % | 4,265 | 4,174 | 2 | % | ||||||||||||||
Restructuring and other charges (A) | 29 | 67 | (57) | % | 70 | 101 | (31) | % | ||||||||||||||
Goodwill impairment (C) | 20 | - | 100 | % | 20 | - | 100 | % | ||||||||||||||
Impairment of other intangible assets | 18 | - | 100 | % | 18 | - | 100 | % | ||||||||||||||
2,324 | 2,281 | 2 | % | 4,373 | 4,275 | 2 | % | |||||||||||||||
Operating Expense Margin | 58.0 | % | 60.9 | % | 58.1 | % | 60.9 | % | ||||||||||||||
Operating Income | 771 | 710 | 9 | % | 1,423 | 1,279 | 11 | % | ||||||||||||||
Operating Income Margin | 19.3 | % | 19.0 | % | 18.9 | % | 18.2 | % | ||||||||||||||
Interest expense | 35 | 32 | 9 | % | 69 | 63 | 10 | % | ||||||||||||||
Interest income and investment income, net | 12 | 12 |
- |
% | 27 | 24 | 13 | % | ||||||||||||||
Other components of net periodic benefit cost | - |
- |
- |
% | - | 1 | 100 | % | ||||||||||||||
Earnings before Income Taxes | 748 | 690 | 8 | % | 1,381 | 1,239 | 11 | % | ||||||||||||||
Provision for income taxes (D) | 171 | 565 | (70) | % | 302 | 684 | (56) | % | ||||||||||||||
Net Earnings | 577 | 125 | 100+ | % | 1,079 | 555 | 94 | % | ||||||||||||||
Net earnings attributable to noncontrolling |
||||||||||||||||||||||
interests |
(4) | (2) | 100 | % | (6) | (5) | 20 | % | ||||||||||||||
Net Earnings Attributable to The Estée Lauder |
$ | 573 | $ | 123 | 100+ | % | $ | 1,073 | $ | 550 | 95 | % | ||||||||||
Net earnings attributable to The Estée Lauder |
||||||||||||||||||||||
Basic | $ | 1.58 | $ |
.33 |
100+ | % | $ | 2.94 | $ | 1.49 | 97 | % | ||||||||||
Diluted | 1.55 |
.33 |
100+ | % | 2.88 | 1.46 | 97 | % | ||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||
Basic | 363.3 | 368.7 | 365.1 | 368.5 | ||||||||||||||||||
Diluted | 369.9 | 376.1 | 372.1 | 375.7 | ||||||||||||||||||
(A) In May 2016, the Company announced a multi-year initiative (Leading
Beauty Forward) to build on its strengths and better leverage its cost
structure to free resources for investment to continue its growth
momentum. Leading Beauty Forward is designed to enhance the Company’s
go-to-market capabilities, reinforce its leadership in global prestige
beauty and continue creating sustainable value. During fiscal 2019, the
Company continued to approve specific initiatives under Leading Beauty
Forward. The Company plans to approve additional initiatives through
fiscal 2019 and expects to complete those initiatives through fiscal
2021. Inclusive of approvals from inception through December 31, 2018,
we estimate that Leading Beauty Forward may result in related
restructuring and other charges totaling between
(B) The Company recorded
(C) In December 2018, the Company recorded goodwill and other intangible
asset impairments of
(D) During the three months and six months ended December 31, 2018, the
Company recorded a net charge of
Returns and Charges Associated With Restructuring and Other Activities and Other Adjustments | |||||||||||||||||||||
(Unaudited; $ in millions, except per |
Operating Expenses | ||||||||||||||||||||
Sales |
Cost of |
Restructuring |
Other |
Total |
After Tax |
Diluted |
|||||||||||||||
Three Months Ended December 31, 2018 | |||||||||||||||||||||
Leading Beauty Forward | $ | - | $ | 6 | $ | 4 | $ | 25 | $ | 35 | $ | 31 | $ | .08 | |||||||
Contingent consideration | 2 | 2 | 1 | - | |||||||||||||||||
Intangible asset impairments | 38 | 38 | 34 | .09 | |||||||||||||||||
Transition Tax resulting from the TCJA |
(2) | - | |||||||||||||||||||
Remeasurement of |
|||||||||||||||||||||
assets as of the TCJA enactment date |
8 | .02 | |||||||||||||||||||
Total | $ | - | $ | 6 | $ | 4 | $ | 65 | $ | 75 | $ | 72 | $ | .19 | |||||||
Six Months Ended December 31, 2018 | |||||||||||||||||||||
Leading Beauty Forward | $ | - | $ | 12 | $ | 19 | $ | 51 | $ | 82 | $ | 68 | $ | .18 | |||||||
Contingent consideration | (9) | (9) | (8) | (.02) | |||||||||||||||||
Intangible asset impairments | 38 | 38 | 34 | .09 | |||||||||||||||||
Transition Tax resulting from the TCJA | (12) | (.03) | |||||||||||||||||||
Remeasurement of |
|||||||||||||||||||||
assets as of the TCJA enactment date |
8 | .02 | |||||||||||||||||||
Net deferred tax liability related to foreign |
|||||||||||||||||||||
withholding taxes on certain foreign |
|||||||||||||||||||||
earnings resulting from the TCJA |
9 | .03 | |||||||||||||||||||
Total | $ | - | $ | 12 | $ | 19 | $ | 80 | $ | 111 | $ | 99 | $ | .27 | |||||||
(Unaudited; $ in millions, except per |
|
Operating Expenses |
|||||||||||||||||||
Sales |
Cost of |
Restructuring |
Other |
Total | After Tax |
Diluted |
|||||||||||||||
Three Months Ended December 31, 2017 | |||||||||||||||||||||
Leading Beauty Forward | $ | - | $ | 2 | $ | 39 | $ | 28 | $ | 69 | $ | 55 | $ | .15 | |||||||
Contingent consideration | 2 | 2 | 1 | - | |||||||||||||||||
Transition Tax resulting from the TCJA | 325 | .86 | |||||||||||||||||||
Remeasurement of |
|||||||||||||||||||||
assets as of the TCJA enactment date |
51 | .14 | |||||||||||||||||||
Net deferred tax liability related to foreign |
|||||||||||||||||||||
withholding taxes on certain foreign |
|||||||||||||||||||||
earnings resulting from the TCJA |
18 | .05 | |||||||||||||||||||
Total | $ | - | $ | 2 | $ | 39 | $ | 30 | $ | 71 | $ | 450 | $ | 1.20 | |||||||
Six Months Ended December 31, 2017 | |||||||||||||||||||||
Leading Beauty Forward | $ | - | $ | 6 | $ | 53 | $ | 48 | $ | 107 | $ | 81 | $ | .22 | |||||||
Contingent consideration | 3 | 3 | 2 | - | |||||||||||||||||
Transition Tax resulting from the TCJA | 325 | .86 | |||||||||||||||||||
Remeasurement of |
|||||||||||||||||||||
assets as of the TCJA enactment date |
51 | .14 | |||||||||||||||||||
Net deferred tax liability related to foreign |
|||||||||||||||||||||
withholding taxes on certain foreign |
|||||||||||||||||||||
earnings resulting from the TCJA |
18 | .05 | |||||||||||||||||||
Total | $ | - | $ | 6 | $ | 53 | $ | 51 | $ | 110 | $ | 477 | $ | 1.27 | |||||||
Results by Product Category |
||||||||||||||||||||||||||
Six Months Ended December 31 | ||||||||||||||||||||||||||
Net Sales | Percent Change |
Operating Income |
Percent |
|||||||||||||||||||||||
(Unaudited; $ in millions) | 2018 | 2017 |
Reported |
Constant |
2018 | 2017 |
Reported |
|||||||||||||||||||
Skin Care | $ | 3,218 | $ | 2,769 | 16 | % | 18 | % | $ | 1,031 | $ | 780 | 32 | % | ||||||||||||
Makeup | 2,966 | 2,887 | 3 | 5 | 299 | 395 | (24 | ) | ||||||||||||||||||
Fragrance | 1,009 | 1,041 | (3 | ) | (1 | ) | 139 | 172 | (19 | ) | ||||||||||||||||
Hair Care | 297 | 280 | 6 | 7 | 29 | 32 | (9 | ) | ||||||||||||||||||
Other | 39 | 41 | (5 | ) | (5 | ) | 7 | 7 | - | |||||||||||||||||
Subtotal | 7,529 | 7,018 | 7 | 9 | 1,505 | 1,386 | 9 | |||||||||||||||||||
Charges associated with |
||||||||||||||||||||||||||
restructuring and other activities |
- | - | (82 | ) | (107 | ) | 23 | |||||||||||||||||||
Total | $ | 7,529 | $ | 7,018 | 7 | % | 9 | % | $ | 1,423 | $ | 1,279 | 11 | % |
Results by Geographic Region |
|||||||||||||||||||||||||||
Six Months Ended December 31 | |||||||||||||||||||||||||||
Net Sales | Percent Change |
Operating Income |
Percent |
||||||||||||||||||||||||
(Unaudited; $ in millions) | 2018 | 2017 |
Reported |
Constant |
2018 | 2017 |
Reported |
||||||||||||||||||||
The |
$ | 2,454 | $ | 2,637 | (7 | ) | % | (6 | ) | % | $ | (28 | ) | $ | 198 | > | (100 | ) | % | ||||||||
3,200 | 2,820 | 13 | 16 | 1,086 | 810 | 34 | |||||||||||||||||||||
1,875 | 1,561 | 20 | 23 | 447 | 378 | 18 | |||||||||||||||||||||
Subtotal | 7,529 | 7,018 | 7 | 9 | 1,505 | 1,386 | 9 | ||||||||||||||||||||
Charges associated with |
|||||||||||||||||||||||||||
restructuring and other activities |
- | - | (82 | ) | (107 | ) | 23 | ||||||||||||||||||||
Total | $ | 7,529 | $ | 7,018 | 7 | % | 9 | % | $ | 1,423 | $ | 1,279 | 11 | % | |||||||||||||
The change in total net sales was unfavorably impacted by the adoption of ASC 606, as previously mentioned. Adjusting for the impact of ASC 606, total net sales in constant currency increased 11% and reported operating income increased 21%.
This earnings release includes some non-GAAP financial measures relating
to charges associated with restructuring and other activities, goodwill
and other intangible asset impairments, the changes in the fair value of
contingent consideration, the Transition Tax, the remeasurement of
The Company operates on a global basis, with the majority of its net
sales generated outside
Reconciliation of Certain Consolidated Statements of Earnings Accounts Before and After Returns, Charges and Other Adjustments | ||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended December 31, 2018 |
Three Months Ended |
|||||||||||||||||||||||||||||||||||||||||||||
(Unaudited; $ in millions, |
As Reported |
Returns/ |
Non-GAAP |
Impact of |
Non-GAAP, |
Impact of |
Non-GAAP, |
As Reported |
Returns/ |
Non-GAAP |
% Change |
% Change |
||||||||||||||||||||||||||||||||||
Net Sales | $ | 4,005 | $ | - | $ | 4,005 | $ | 67 | $ | 4,072 | $ | 89 | $ | 4,161 | $ | 3,744 | $ | - | $ | 3,744 | 7 | % | 11 | % | ||||||||||||||||||||||
Cost of sales | 910 | (6 | ) | 904 | (86 | ) | 818 | 19 | 837 | 753 | (2 | ) | 751 | |||||||||||||||||||||||||||||||||
Gross Profit | 3,095 | 6 | 3,101 | 153 | 3,254 | 70 | 3,324 | 2,991 | 2 | 2,993 | 4 | % | 11 | % | ||||||||||||||||||||||||||||||||
Gross Margin | 77.3 | % | 77.4 | % | 79.9 | % | 79.9 | % | 79.9 | % | 79.9 | % | ||||||||||||||||||||||||||||||||||
Operating expenses | 2,324 | (69 | ) | 2,255 | 99 | 2,354 | 46 | 2,400 | 2,281 | (69 | ) | 2,212 | 2 | % | 8 | % | ||||||||||||||||||||||||||||||
Operating Expense Margin | 58.0 | % | 56.3 | % | 57.8 | % | 57.7 | % | 60.9 | % | 59.1 | % | ||||||||||||||||||||||||||||||||||
Operating Income | 771 | 75 | 846 | 54 | 900 | 24 | 924 | 710 | 71 | 781 | 8 | % | 18 | % | ||||||||||||||||||||||||||||||||
Operating Income Margin | 19.3 | % | 21.1 | % | 22.1 | % | 22.2 | % | 19.0 | % | 20.9 | % | ||||||||||||||||||||||||||||||||||
Provision for income taxes | 171 | 3 | 174 | 13 | 187 | 6 | 193 | 565 | (379 | ) | 186 | (6 | ) | % | 4 | % | ||||||||||||||||||||||||||||||
Net Earnings Attributable |
$ | 573 | $ | 72 | $ | 645 | $ | 41 | $ | 686 | $ | 18 | $ | 704 | $ | 123 | $ | 450 | $ | 573 | 13 | % | 23 | % | ||||||||||||||||||||||
Diluted net earnings |
$ | 1.55 | $ | .19 | $ | 1.74 | $ | .11 | $ | 1.86 | $ | .05 | $ | 1.91 | $ | .33 | $ | 1.19 | $ | 1.52 | 14 | % | 25 | % | ||||||||||||||||||||||
Amounts may not sum due to rounding. | ||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Certain Consolidated Statements of Earnings Accounts Before and After Returns, Charges and Other Adjustments | ||||||||||||||||||||||||||||||||||||||||||||||
Six Months Ended December 31, 2018 |
Six Months Ended |
|||||||||||||||||||||||||||||||||||||||||||||
(Unaudited; $ in millions, |
As Reported |
Returns/ |
Non-GAAP |
Impact of |
Non-GAAP, |
Impact of |
Non-GAAP, |
As Reported |
Returns/ |
Non-GAAP |
% Change |
% Change |
||||||||||||||||||||||||||||||||||
Net Sales | $ | 7,529 | $ | - | $ | 7,529 | $ | 134 | $ | 7,663 | $ | 142 | $ | 7,805 | $ | 7,018 | $ | - | $ | 7,018 | 7 | % | 11 | % | ||||||||||||||||||||||
Cost of sales | 1,733 | (12 | ) | 1,721 | (152 | ) | 1,569 | 31 | 1,600 | 1,464 | (6 | ) | 1,458 | |||||||||||||||||||||||||||||||||
Gross Profit | 5,796 | 12 | 5,808 | 286 | 6,094 | 111 | 6,205 | 5,554 | 6 | 5,560 | 4 | % | 12 | % | ||||||||||||||||||||||||||||||||
Gross Margin | 77.0 | % | 77.1 | % | 79.5 | % | 79.5 | % | 79.1 | % | 79.2 | % | ||||||||||||||||||||||||||||||||||
Operating expenses | 4,373 | (99 | ) | 4,274 | 201 | 4,475 | 74 | 4,549 | 4,275 | (104 | ) | 4,171 | 2 | % | 9 | % | ||||||||||||||||||||||||||||||
Operating Expense Margin | 58.1 | % | 56.8 | % | 58.4 | % | 58.3 | % | 60.9 | % | 59.4 | % | ||||||||||||||||||||||||||||||||||
Operating Income | 1,423 | 111 | 1,534 | 85 | 1,619 | 37 | 1,656 | 1,279 | 110 | 1,389 | 10 | % | 19 | % | ||||||||||||||||||||||||||||||||
Operating Income Margin | 18.9 | % | 20.4 | % | 21.1 | % | 21.2 | % | 18.2 | % | 19.8 | % | ||||||||||||||||||||||||||||||||||
Provision for income taxes | 302 | 12 | 314 | 19 | 333 | 9 | 342 | 684 | (367 | ) | 317 | (1 | ) | % | 8 | % | ||||||||||||||||||||||||||||||
Net Earnings Attributable to The Estée Lauder Companies Inc. |
$ | 1,073 | $ | 99 | $ | 1,172 | $ | 66 | $ | 1,238 | $ | 28 | $ | 1,266 | $ | 550 | $ | 477 | $ | 1,027 | 14 | % | 23 | % | ||||||||||||||||||||||
Diluted net earnings
attributable to The Estée Lauder Companies Inc. per common share |
$ | 2.88 | $ | .27 | $ | 3.15 | $ | .18 | $ | 3.33 | $ | .07 | $ | 3.41 | $ | 1.46 | $ | 1.27 | $ | 2.73 | 15 | % | 25 | % | ||||||||||||||||||||||
Amounts may not sum due to rounding. | ||||||||||||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
(Unaudited; $ in millions) |
December 31 |
June 30 |
December 31 |
||||||
ASSETS | |||||||||
Current Assets | |||||||||
Cash and cash equivalents | $ | 1,876 | $ | 2,181 | $ | 2,105 | |||
Short-term investments | 525 | 534 | 394 | ||||||
Accounts receivable, net | 2,000 | 1,487 | 1,699 | ||||||
Inventory and promotional merchandise, net | 1,651 | 1,618 | 1,445 | ||||||
Prepaid expenses and other current assets | 388 | 348 | 332 | ||||||
Total Current Assets | 6,440 | 6,168 | 5,975 | ||||||
Property, Plant and Equipment, net | 1,859 | 1,823 | 1,728 | ||||||
Other Assets | 4,377 | 4,576 | 4,901 | ||||||
Total Assets | $ | 12,676 | $ | 12,567 | $ | 12,604 | |||
LIABILITIES AND EQUITY | |||||||||
Current Liabilities | |||||||||
Current debt | $ | 18 | $ | 183 | $ | 413 | |||
Accounts payable | 995 | 1,182 | 738 | ||||||
Other accrued liabilities | 2,763 | 1,945 | 2,252 | ||||||
Total Current Liabilities | 3,776 | 3,310 | 3,403 | ||||||
Noncurrent Liabilities | |||||||||
Long-term debt | 3,373 | 3,361 | 3,374 | ||||||
Other noncurrent liabilities | 1,194 | 1,186 | 1,238 | ||||||
Total Noncurrent Liabilities | 4,567 | 4,547 | 4,612 | ||||||
Total Equity | 4,333 | 4,710 | 4,589 | ||||||
Total Liabilities and Equity | $ | 12,676 | $ | 12,567 | $ | 12,604 | |||
The following table details the impacts of ASC 606 on the Company’s Consolidated Balance Sheet as of December 31, 2018.
CONSOLIDATED BALANCE SHEET IMPACT FROM ASC 606 | ||||||||||
(Unaudited; $ in millions) | As Reported | Adjustments |
Prior to the |
|||||||
Accounts receivable, net | $ | 2,000 | $ | (199 | ) | $ | 1,801 | |||
Inventory and promotional merchandise, net | 1,651 | (25 | ) | 1,626 | ||||||
Other Assets | 633 | (88 | ) | 545 | ||||||
Total Assets | $ | 12,676 | $ | (312 | ) | $ | 12,364 | |||
Other accrued liabilities | 2,763 | (551 | ) | 2,212 | ||||||
Other noncurrent liabilities | 1,194 | (55 | ) | 1,139 | ||||||
Total Liabilities | $ | 8,343 | $ | (606 | ) | $ | 7,737 | |||
Total Equity | $ | 4,306 | $ | 293 | $ | 4,599 | ||||
SELECT CASH FLOW DATA | ||||||||
Six Months Ended | ||||||||
December 31 | ||||||||
(Unaudited; $ in millions) | 2018 | 2017 | ||||||
Cash Flows from Operating Activities | ||||||||
Net earnings | $ | 1,079 | $ | 555 | ||||
Depreciation and amortization | 269 | 256 | ||||||
Deferred income taxes | (46 | ) | 106 | |||||
Other items | 175 | 155 | ||||||
Changes in operating assets and liabilities: | ||||||||
Increase in accounts receivable, net | (343 | ) | (281 | ) | ||||
Decrease (increase) in inventory and promotional merchandise, net | (21 | ) | 66 | |||||
Decrease (increase) in other assets, net | (53 | ) | 1 | |||||
Increase in accounts payable and other liabilities | 213 | 581 | ||||||
Net cash flows provided by (used for) operating activities | $ | 1,273 | $ | 1,439 | ||||
Other Investing and Financing Sources/(Uses): | ||||||||
Capital expenditures | $ | (292 | ) | $ | (263 | ) | ||
Proceeds of investments, net | 257 | 130 | ||||||
Payments to acquire treasury stock | (1,126 | ) | (398 | ) | ||||
Dividends paid | (297 | ) | (267 | ) | ||||
Proceeds (repayments) of current debt, net | (169 | ) | 222 | |||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20190205005267/en/
Investors: Rainey Mancini
(212) 284-3049
Media:
Alexandra Trower
(212) 572-4430
Source: The Estée Lauder Companies Inc.