Analysts say that while cosmetics maker Estee Lauder Inc.'s new chief operating officer could improve results eventually, that will take awhile to occur.
Estee Lauder hosted an analyst meet-and-greet on Tuesday with Fabrizio Freda, who took over as the company's president and chief operating officer in March.
Freda was previously president of global snacks at Cincinnati-based consumer products company Procter & Gamble Co. By hiring Freda, Chief Executive William Lauder, grandson of the company founder, has created a succession plan that sets the stage for Freda to become his successor within 24 months.
Citigroup analyst Wendy Nicholson wrote in a note late Tuesday that Freda offered some "suprisingly big new thoughts" about the New York company, which earlier this month reported third-quarter earnings fell 4 percent as strong international sales were offset by weak U.S. results.
"Freda suggested that he would be focused on making return on investment capital more of an important metric within Estee Lauder," Nicholson wrote.
She reiterated her "Buy" rating on the company.
Gary M. Giblen, a Goldsmith & Harris analyst, said he was surprised at the enthusiastic reception given to Freda, particularly since he has no experience in the beauty sector, and said a turnaround is not necessarily a given.
"The superficial reaction to anyone from a marquee company is it's great," he said in a telephone interview. "But it's important to look at specific experience and challenges," they've faced, Giblen said.
Amid a weakening U.S. economy and intensifying competition in the prestige beauty sector, a turnaround should not be treated like a sure thing, and wouldn't happen until 2010 or 2011 anyway, he said.
Goldman Sachs analyst Andrew Sawyer said the company's stock, which is up more than 8 percent since the beginning of the year, is "ahead of itself."
"Investors are clearly focused on the potential for a more productive business model," he wrote. "We do not anticipate much margin progress in fiscal 2009, which could disappoint some of the more optimistic investors."
He kept his "Neutral" rating on the stock.
"We would await a more opportunistic entry point or early signs of margin progress before putting fresh money to work," he wrote.
Estee Lauder shares fell 27 cents to $47 during afternoon trading.
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