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Estee Lauder (NYSE: NYSE:EL) has retained its Overweight rating and a price target of $129.00, as confirmed by JPMorgan. The beauty company's fourth-quarter fiscal year 2024 adjusted earnings per share (EPS) of $0.64 soared past the high end of its guidance range, which was set between $0.18 and $0.28.
The performance also notably exceeded the forecasts of both JPMorgan and the wider financial community, which had anticipated an EPS of $0.26 and $0.27, respectively.
The substantial beat in EPS for Estee Lauder was primarily attributed to a lower-than-expected selling, general, and administrative (SG&A) expense ratio, which came in at $0.27 below JPMorgan's estimate.
Additionally, a more favorable tax impact due to restructuring and other items contributed an extra $0.19 above JPMorgan's projections. These gains were slightly offset by other non-operational items that negatively impacted EPS by $0.07, and a gross margin that was $0.02 lower than expected.
Estee Lauder's organic sales growth (OSG) for the total company came in at +7.0%, which, while at the lower end of their +6% to +10% guidance range and below JPMorgan's +8.3% forecast, met the consensus estimate of +7.2% as per Consensus Metrix.
The SG&A ratio stood at 62.7%, which was a positive surprise, showing a decrease of 334 basis points compared to JPMorgan's estimate and a year-over-year decrease of 364 basis points. In contrast, the gross margin was slightly below JPMorgan's estimate by 19 basis points, yet it represented an increase of 341 basis points year-over-year.
The resulting earnings before interest and taxes (EBIT) margin for Estee Lauder was 9.0%, which exceeded JPMorgan's forecast by 315 basis points.
Estee Lauder had surpassed fourth-quarter expectations for fiscal year 2024, reporting an 8.0% increase in organic sales and adjusted EBIT of $349 million. However, Estee Lauder's president and CEO, Fabrizio Freda, announced his retirement at the end of fiscal 2025, triggering a search for a successor.
Despite strong fourth-quarter results, the company's guidance for fiscal 2025 fell below consensus estimates. Estee Lauder anticipates organic sales growth ranging from a 1% decline to a 2% increase, and earnings per share are projected to be between $2.75 and $2.95, lower than the consensus of $3.97.
Analyst firms have responded to these developments. Stifel maintains a Buy rating on Estee Lauder, while Canaccord Genuity and BofA Securities have downgraded their ratings due to concerns over weaker-than-anticipated performance in the beauty sector within China. Citi and Morgan Stanley, however, have maintained their Buy and Equalweight ratings respectively.
Estee Lauder has also declared a quarterly dividend of 66 cents per share, underscoring its commitment to shareholder value.
InvestingPro Insights
Estee Lauder's (NYSE: EL) recent earnings report has been a subject of positive attention, and the InvestingPro data underscores some of the key strengths and challenges facing the company. With a market capitalization of $34.05 billion, the company trades at a high earnings multiple of 53.12, reflecting investor confidence in its future growth potential despite a slight revenue decline of 3.25% over the last twelve months as of Q3 2024. However, the company's impressive gross profit margin of 70.77% during the same period highlights its ability to maintain profitability in a competitive market.
InvestingPro Tips for Estee Lauder suggest that while analysts have revised their earnings downwards for the upcoming period, the company still demonstrates significant financial strengths. It has raised its dividend for three consecutive years, indicating a commitment to returning value to shareholders. Additionally, Estee Lauder's liquid assets exceed its short-term obligations, suggesting a solid financial position to navigate market uncertainties.
For those interested in more detailed analysis and additional insights, InvestingPro offers more tips on Estee Lauder, which can be found at InvestingPro's Estee Lauder page.
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