Makeup maven EsteeLauder (NYSE:EL) had an ugly day today. The company reported third-quarter numbers that came in below Wall Street's expectations and offered up a rather dowdy outlook for the year. It's not hard to comprehend why investors gave the stock the wallflower treatment today.
For the third quarter, Estee Lauder reported net earnings 8% higher at $106.2 million, or $0.46 per diluted share, while sales increased 8% to $1.54 billion. In its conference call, the company described problems with fragrance sales and a slowdown in sales in the UK, as well as in markets like France and Italy.
There's quite a discrepancy between what the company actually earned and the $0.52 per share that analysts had expected of the company. But perhaps even more disturbing to some investors was the company's admission that merger activity in the retail industry could cause some short-term pain. The company also ratcheted down its 2005 earnings projection to a range of $1.87 to $1.90 per share. It looks like the buzzword for the time being is "caution."
Estee Lauder's press release showed a buildup of inventories -- an area that investors should keep an eye on. The company generated $287.4 million in cash flow from operations, 48% less than it generated this time last year. On a more positive side of things, the company has pared down its long-term debt by nearly half on a year-over-year basis. However, short-term debt ballooned.
For many investors, of course, short-term machinations are no big deal, and Estee Lauder is no flash in the pan. It's without a doubt a leader in cosmetics, since it's the name behind powerful brands that command a ton of loyalty, such as Clinique, MAC, Prescriptives, Aveda, and, of course, its namesake line. (One can't help wondering how "Donald Trump, the Fragrance" is doing. No, I can't resist poking a little fun at that one.)
In my opinion, Estee Lauder's leadership in cosmetics belies at least some of the negativity surrounding the stock price today. Even with consolidation in the retail industry, this is a company with some very loyal customers for some very stalwart brands.
However, given its cautious outlook for the rest of the year and some of the details in today's press announcement -- not to mention a forward P/E of 20, even with today's stock price decrease -- the stock sounds a little more pricey than pretty at the moment.
For more on makeup companies, check out these recent stories:
- Is Avon (NYSE:AVP) a bargain?
- Does Revlon (NYSE:REV) need a facelift?
- Avon's got a new year in China.
Alyce Lomax does not own shares of any of the companies mentioned.
