Beauty products company Estée Lauder (NYSE:EL) reported Q2 CY2024 results exceeding Wall Street analysts’ expectations, with revenue up 7.3% year on year to $3.87 billion. It made a non-GAAP profit of $0.64 per share, improving from its profit of $0.07 per share in the same quarter last year.
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Estée Lauder (EL) Q2 CY2024 Highlights:
- Revenue: $3.87 billion vs analyst estimates of $3.80 billion (1.8% beat)
- EPS (non-GAAP): $0.64 vs analyst estimates of $0.25 (151% beat)
- EPS (non-GAAP) guidance for the upcoming financial year 2025 is $2.85 at the midpoint, missing analyst estimates by 28.2%
- Gross Margin (GAAP): 71.8%, up from 67.8% in the same quarter last year
- EBITDA Margin: -0.6%, down from 7.4% in the same quarter last year
- Free Cash Flow Margin: 17.4%, up from 10.1% in the same quarter last year
- Organic Revenue rose 8% year on year (4% in the same quarter last year)
- Market Capitalization: $34.05 billion
Fabrizio Freda, President and CEO said, “In fiscal 2024’s fourth quarter, we achieved our organic sales outlook and exceeded expectations for profitability, closing a difficult year. Organic sales and adjusted EPS returned to growth in the second half."
Named after its founder, who was an entrepreneurial woman from New York with a passion for skincare, Estée Lauder (NYSE:EL) is a one-stop beauty shop with products in skincare, fragrance, makeup, sun protection, and men’s grooming.
Personal Care
While personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.
Sales Growth
Estée Lauder is one of the larger consumer staples companies and benefits from a well-known brand, giving it customer mindshare and influence over purchasing decisions.
As you can see below, the company’s revenue has declined over the last three years, dropping 1.3% annually. This is among the worst in the consumer staples industry, where demand is typically stable.
This quarter, Estée Lauder reported solid year-on-year revenue growth of 7.3%, and its $3.87 billion in revenue outperformed Wall Street’s estimates by 1.8%. Looking ahead, Wall Street expects sales to grow 5.5% over the next 12 months, a deceleration from this quarter.
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Organic Revenue Growth
When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding the impacts of foreign currency fluctuations and one-time events such as mergers, acquisitions, and divestitures.
Estée Lauder’s demand has been falling over the last eight quarters, and on average, its organic sales have declined by 3.1% year on year.
In the latest quarter, Estée Lauder’s organic sales rose 8% year on year. This growth was an acceleration from the 4% year-on-year increase it posted 12 months ago, which is always an encouraging sign.
Key Takeaways from Estée Lauder’s Q2 Results
We were impressed by how significantly Estée Lauder blew past analysts’ EPS expectations this quarter. We were also excited its organic revenue growth outperformed Wall Street’s estimates. On the other hand, its full-year earnings forecast missed analysts’ expectations, sending shares lower. The stock traded down 7.4% to $87.90 immediately after reporting.
So should you invest in Estée Lauder right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.