What happened
Shares of The Estée Lauder Companies (EL -0.88%), a global cosmetics company, got hit hard at the open on May 3, falling as much as 12.5% in early trading. As of 10:33 a.m. ET today, shares were still down 5%. The big news was the company's fiscal third-quarter 2022 earnings release. The quarter was a good one, but investors were thinking more about the future this morning.
So what
On the top line, Estée Lauder reported sales of $4.25 billion for the quarter, up 10% from $3.86 billion in the year-ago period. Organic sales rose a solid 9%. Management noted that net sales grew in every product category, with particular strength in the Americas and Europe, the Middle East, and Africa. Stores reopening after pandemic-related closures was a key benefit, though strong online sales were also noted. Adjusted earnings per share came in at $1.90, up 18% over the fiscal third quarter of 2021. It's hard to complain about those numbers.
Image source: Getty Images.
And yet the stock sold off. That's likely because Estée Lauder noted that, beginning in mid-March, coronavirus restrictions in China began to hamper its business. That included both store closures and limits on its distribution facilities being able to fulfill both brick-and-mortar and online orders. Geopolitical tensions were also highlighted as a headwind. These concerns led the company to lower its fiscal fourth-quarter outlook. The change was pretty material, too, with full-year sales growth now down to 7% to 9% from a previous target of 13% to 16%. Adjusted earnings-per-share growth is now pegged at 8% to 10%, materially lower than the previous target of 14% to 17%. No wonder investors were less than enthusiastic today.
Now what
Although Estée Lauder clearly had a good quarter, suggesting that its business is strong, Wall Street is focused on the near-term risks here. Given the material lowering of guidance for the fiscal year, with just one quarter left, the headwinds are not small. Perhaps the negative mood around the shares makes some sense until there's more clarity.
