– Fourth Quarter Reported Net Sales
Increased 14%; Up 12% in Constant Currency –
– Full Year Reported Net Sales Rose 16%; Up
13% in Constant Currency –
– Strong Constant Currency Growth Expected
to Continue in Fiscal 2019 –
The Estée Lauder Companies Inc. (NYSE:EL) today reported strong
financial results for its fourth quarter and fiscal year ended June
30, 2018. The Company reported fiscal year 2018 diluted net
earnings per common share of $2.95 compared with $3.35 reported in
the prior year. Excluding restructuring and other charges and
adjustments, adjusted diluted net earnings per common share
increased 30% to $4.51, and in constant currency rose 24%.
Fabrizio Freda, President and Chief Executive Officer, said,
“Fiscal 2018 was an outstanding year for our Company. We generated
higher sales in every region and product category and gained global
share. By investing in our hero franchises, fast-growing channels
and digital and social media, we delivered double-digit sales and
adjusted earnings per share growth. We achieved record net sales in
fiscal 2018 and one of our best performances in the last
decade.
“Sales climbed in virtually all our brands and we hit milestones
along the way. Among the top four brands, our flagship Estée Lauder
brand achieved record global sales and grew 22% in constant
currency, demonstrating the amazing equity of the brand. La Mer
became the fourth brand in our portfolio to contribute well over $1
billion in net sales, and we increased sales at M•A•C and Clinique
globally.
“Product innovation and creativity were strong across brands and
Leading Beauty Forward provided us the flexibility to invest more
in digital advertising behind our initiatives, which is
accelerating our sales growth.”
Freda added, “In fiscal 2019, we will continue to create
products that appeal to a more diverse and growing middle class
around the world and we are confident that we can continue to
achieve industry-leading sales and double-digit earnings per share
growth. With a successful strategy that focuses on multiple engines
of growth across products, geographies, channels and demographics,
we expect to once again gain share globally in fiscal 2019.”
For the three months ended June 30, 2018, the Company
reported net sales of $3.30 billion, a 14% increase compared with
$2.89 billion in the prior-year period. The Company posted net
sales growth in most brands and across-the-board gains in all
geographic regions and product categories. Net sales increased in
several developed and emerging markets, reflecting especially
strong growth from the travel retail, online and specialty-multi
channels. Excluding the impact of currency translation, net sales
increased 12%.
Net earnings for the quarter were $186 million, compared with
$229 million last year, and diluted net earnings per common share
was $.49, compared with $.61 reported in the prior-year period.
Adjusted diluted net earnings per common share rose 20% to $.61,
and 11% in constant currency, for the three months ended June 30,
2018, excluding restructuring and other charges and adjustments,
the impact of the new tax law in the United States and the effect
of currency translation, as detailed in the table below.
Reconciliation between GAAP and
non-GAAP
Three Months Ended June 30, 2018
Three Months Ended June
30
Net Sales Growth Diluted EPS Change
Diluted Earnings Per
Share
(Unaudited)
ReportedBasis
ConstantCurrency
ReportedBasis
ConstantCurrency
2018 2017
Results including restructuring and
othercharges and adjustments
14 %(1) 12 % (19 %)(1) (29 %) $
.49
(1)
$
.61
(1)
Non-GAAP
Restructuring and other charges(2) .10 .15 Contingent consideration
(.08 ) (.11 ) Transition tax resulting from the TCJA(3) .05 —
Remeasurement of U.S. net deferred
taxassets as of the TCJA enactment date
(.03 ) —
Net deferred tax liability related
toforeign withholding taxes on certainforeign earnings resulting
from the TCJA
.07 — Intangible asset impairments — .06 China deferred tax asset
valuation allowance reversal —
(.20 ) Adjusted results 14 % 12 % 20 % 11 % .61 $ .51
Impact of currency translation on
earnings per share
(.05 ) Constant currency earnings per share $ .56
_________________________
(1) Represents GAAP.
(2) Includes charges associated with
Leading Beauty Forward.
(3) Tax Cuts and Jobs Act (“TCJA”).
Amounts may not sum due to rounding.
Net sales and operating income in the Company’s product
categories and regions outside the United States were favorably
impacted by a weaker U.S. dollar in relation to most currencies.
The Company reported operating income for the three months ended
June 30, 2018 of $277 million, a 20% increase from $230 million in
the prior year. Total operating income excluding the favorable
impact of currency translation of $13 million and before charges
and other adjustments, declined 1%, largely reflecting strategic
investments made in digital and social media advertising to support
long-term growth in fiscal 2019 and beyond.
Fourth Quarter
Results by Product Category
Three Months Ended June 30 (Unaudited; Dollars in
millions) Net Sales Percent Change
OperatingIncome (Loss)
PercentChange
2018 2017
ReportedBasis
ConstantCurrency
2018 2017
ReportedBasis
Skin Care $ 1,379 $ 1,072 29 % 26 % $ 292 $ 186 57 % Makeup
1,358 1,311 4 2 35 151 (77 ) Fragrance 403 362 11 9 (19 ) (42 ) 55
Hair Care 151 140 8 6 19 13 46 Other 12 9 33 33 — —
— Subtotal 3,303 2,894 14 12 327 308 6 Returns and charges
associated with restructuring and other activities (8 ) — (50
)
(78 ) Total $ 3,295 $ 2,894 14 % 12 % $ 277 $ 230
20 %
Skin Care
- Skin Care net sales increased
double-digits in every geographic region. Growth was particularly
strong in Europe, the Middle East & Africa, travel retail, and
China. By brand, the Estée Lauder, La Mer and Clinique brands were
the largest contributors to growth.
- Operating income increased primarily
from Estée Lauder and La Mer, reflecting higher net sales in
Asia/Pacific and Europe, the Middle East & Africa, with the
strongest growth in China and travel retail.
Makeup
- Makeup net sales increased. Strong
double-digit growth from Estée Lauder, Tom Ford, Too Faced, BECCA
and La Mer were partially offset by declines from M•A•C and
Clinique.
- Makeup operating income declined
primarily due to lower operating results from M•A•C that mainly
reflected investments to support its turnaround in North America,
stock adjustments in the Middle East, and higher advertising in
Asia/Pacific to drive net sales in the fast-growing region.
Fragrance
- Higher fragrance net sales reflected
growth across all geographic regions. Jo Malone London, Tom Ford
and Le Labo all had strong double-digit gains.
- Fragrance operating results improved,
reflecting higher net sales from Tom Ford, primarily in North
America, as well as the Europe, the Middle East & Africa
region, which benefited from strong growth in travel retail. By
Kilian also contributed to the growth. The category performance
also reflected a decline from Estée Lauder fragrances in the United
States.
Hair Care
- Hair care net sales increased primarily
due to the successful launch of new Aveda products.
- The increase in hair care operating
income reflected the higher net sales.
Fourth Quarter
Results by Geographic Region
Three Months Ended June 30 (Unaudited; Dollars in
millions) Net Sales Percent Change
OperatingIncome (Loss)
PercentChange
2018 2017
ReportedBasis
ConstantCurrency
2018 2017
ReportedBasis
The Americas $ 1,197 $ 1,173 2 % 2 % $ (20 ) $ 48 (100+ %)
Europe, the Middle East & Africa 1,398 1,173 19 16 329 247 33
Asia/Pacific 708 548 29 24 18 13 39 Subtotal
3,303 2,894 14 12 327 308 6
Returns and charges associated with
restructuring and other activities
(8 ) — (50 ) (78 ) Total $ 3,295 $ 2,894 14 % 12 % $ 277
$ 230 20 %
The Americas
- Net sales in The Americas increased,
led by strong growth in Canada and Latin America. Net sales in the
United States increased slightly.
- Operating income in The Americas
decreased, primarily reflecting lower operating results from M•A•C
due to investments in North America to turn around its business.
The Company also strategically increased digital and social media
investments across the brand portfolio. Higher general and
administrative expenses, including an increase in employee
compensation and investments in information systems, also
contributed to the operating income decline.
Europe, the Middle East &
Africa
- Net sales increased, with double-digit
gains in travel retail and in the Balkans and India, partially
offset by stock adjustments in the Middle East as well as a decline
in the United Kingdom.
- Operating income increased, led by
strong double-digit growth in operating results in travel retail.
The higher results were partially offset by lower results in the
Middle East due to stock adjustments for several brands.
Asia/Pacific
- Net sales increased led by strong
double-digit growth in China and Hong Kong.
- Operating income increased due to
higher results in Hong Kong, partially offset by higher advertising
expense to build awareness and drive continued sales growth over
the next year.
For the fiscal year, the Company achieved net sales of
$13.68 billion, a 16% increase compared with $11.82 billion in the
prior year. The Company posted net sales growth in each major
product category and each geographic region. These results reflect,
in part, the Company’s strategy to drive growth by targeting its
investments to shifts in consumer and market dynamics across
product categories, geographic regions, brands and distribution
channels. This strategy positioned the Company well for the
resurgence in global prestige skin care growth as well as the
strong increase in demand among Chinese consumers.
Net sales increased in several developed and emerging markets,
and reflected strong growth from the travel retail, online and
specialty-multi channels. Skin care net sales benefited from
increases at Estée Lauder, La Mer, Origins and Clinique. Makeup net
sales growth was driven by increases from Estée Lauder, Tom Ford
and M•A•C, as well as both incremental and higher comparable net
sales from our fiscal 2017 acquisitions of Too Faced and BECCA.
Fragrance net sales growth reflected increases from Jo Malone
London, Tom Ford, Le Labo and By Kilian. Hair care net sales
increased, reflecting growth from Aveda. Excluding the impact of
currency translation, net sales increased 13%.
The Company reported operating income for the fiscal year ended
June 30, 2018 of $2.05 billion, a 21% increase from the prior year
of $1.69 billion. Total operating income excluding the favorable
impact of currency translation of $103 million and before charges
and other adjustments, increased 15%, largely reflecting strong
sales growth partially offset by investments made in digital and
social media advertising to support long-term growth in fiscal 2019
and beyond.
Net earnings for the year were $1.11 billion, an 11% decline,
compared with $1.25 billion last year, and diluted net earnings per
common share decreased 12% to $2.95, compared with $3.35 reported
in the prior year. Adjusted diluted net earnings per common share
increased 30% to $4.51, and in constant currency rose 24%, for the
fiscal year ended June 30, 2018, excluding restructuring and other
charges and adjustments, the impact of the new tax law in the
United States and the benefit of currency translation as detailed
in the table below. The fiscal year 2018 diluted net earnings per
common share also includes the tax benefit of the adoption of a new
accounting pronouncement for share-based compensation, which added
$.13.
Reconciliation between GAAP and
non-GAAP
Year Ended June 30, 2018 Year Ended June
30 Net Sales Growth Diluted EPS Change
Diluted Earnings Per
Share
(Unaudited)
Reported Basis
ConstantCurrency
Reported Basis
ConstantCurrency
2018 2017 Results including restructuring and
other charges and adjustments 16 %(1) 13 % (12 %)(1) (18 %)
$
2.95
(1)
$
3.35
(1)
Non-GAAP
Restructuring and other charges(2) .51 .38 Contingent consideration
(.09 ) (.12 ) Transition tax resulting from the TCJA .94 —
Remeasurement of U.S. net deferred tax assets as of the TCJA
enactment date .08 — Net deferred tax liability related to foreign
withholding taxes on certain foreign earnings resulting from the
TCJA .12 — Intangible asset impairments — .06 China deferred tax
asset valuation allowance reversal
— (.20 ) Adjusted results 16 % 13 % 30 % 24 %
4.51 $ 3.47 Impact of currency translation on
earnings per share
(.20 ) Constant currency earnings per share $ 4.31
_________________________
(1) Represents GAAP.
(2) Includes charges associated with
Leading Beauty Forward.
Amounts may not sum due to rounding.
Cash Flows from Operating
Activities
- For the twelve months ended June 30,
2018, net cash flows provided by operating activities were $2.57
billion, a strong increase of 43% compared with $1.80 billion in
the prior year.
- The improvement primarily reflected
higher earnings before income taxes and a net increase in cash from
certain working capital components.
Outlook for Fiscal 2019 First Quarter
and Full Year
Global prestige beauty is continuing to perform exceptionally
well and is estimated to grow 5% to 6% during the fiscal year. The
Company expects to grow ahead of the industry.
Last quarter, the Company disclosed it was conducting a review
of certain testing related to product advertising claims support.
The review is ongoing and, based on the review to date, the Company
does not believe that this matter will be material.
For fiscal 2019, there are two items expected to negatively
impact sales growth. The Company has adopted the new revenue
recognition accounting standard using a modified retrospective
adoption method, which means fiscal year 2018 is not restated. As
fiscal 2019 is the transition year for this accounting change, the
year-over-year growth rate will be reduced as a result of adopting
this new standard. The recent strengthening of the U.S. dollar is
also expected to negatively impact growth.
In May 2016, the Company announced its Leading Beauty Forward
initiative to build on its strengths and better leverage its cost
structure. The Company previously estimated that Leading Beauty
Forward would result in related restructuring and other charges
totaling between $600 million and $700 million, before taxes. After
reviewing additional potential initiatives and the progress of
previously approved initiatives under Leading Beauty Forward, the
Company now expects restructuring and other charges to be between
$900 million and $950 million, before taxes. The Company is also
revising its previous estimate of annual net benefits of between
$200 million and $300 million, before taxes. After its full
implementation, the Company now expects Leading Beauty Forward to
yield annual net benefits of between $350 million and $450 million,
before taxes. These savings can be used to improve margin, mitigate
risk and invest in future growth initiatives.
The Company is also mindful of risks related to social and
political issues, geopolitical tensions, regulatory matters,
including the imposition of tariffs, global security issues,
currency volatility and economic challenges affecting consumer
spending in certain countries and travel corridors. The Company is
also cautious of the decline in retail traffic, primarily related
to certain brick-and-mortar stores in the United States and the
United Kingdom.
First Quarter Fiscal
2019
Sales Outlook
- Reported net sales are forecasted to
increase between 5% and 6% versus the prior-year period, including
a 2% impact from currency translation and a 2% impact from the
adoption of the new revenue recognition accounting standard.
Excluding these items, net sales are expected to grow between 9%
and 10%.
Earnings per share
Outlook
- Reported diluted net earnings per share
are projected to be between $1.07 and $1.12. Excluding
restructuring and other charges, diluted net earnings per share are
projected to be between $1.18 and $1.22.
- On a constant currency basis, before
charges associated with restructuring and other activities as well
as the impact from the new revenue recognition accounting standard,
diluted earnings per share are expected to increase between 7% and
10%.
- The Company expects to take charges
associated with Leading Beauty Forward of approximately $50 million
to $55 million, equal to $.10 to $.11 per diluted common
share.
- The adoption of the new revenue
recognition accounting standard is expected to reduce diluted net
earnings per share by approximately $.07, reflecting the cumulative
impact of revenue deferrals in the first half of the year that we
expect to be recognized in revenue in the second half of the
year.
- Currency exchange rates are volatile
and difficult to predict. Using the June 30th spot rate, the
negative currency impact equates to about $.04 of earnings per
share.
Full Year Fiscal 2019
Sales Outlook
- Reported net sales are forecasted to
increase between 4% and 5% versus the prior-year period, which
includes a 2% impact from currency translation and 1% impact from
the adoption of the new revenue recognition accounting standard.
Excluding these items, net sales are forecasted to grow between 7%
and 8%. This is on the high-end of the Company’s long-term growth
goal of 6% to 8% in constant currency.
Earnings per share
Outlook
- Reported diluted net earnings per share
are projected to be between $4.38 and $4.51. Excluding
restructuring and other charges, diluted net earnings per share are
projected to be between $4.62 and $4.71.
- On a constant currency basis, before
charges and adjustments as well as the impact from the new revenue
recognition accounting standard, diluted earnings per share are
expected to increase between 9% and 11%. This is consistent with
the Company’s long-term growth goal of double-digit earnings per
share growth in constant currency.
- The Company expects to take charges
associated with previously approved restructuring and other
activities relating to Leading Beauty Forward in fiscal 2019 of
approximately $100 million to $120 million, equal to $.20 to $.24
per diluted common share.
- The adoption of the new revenue
recognition accounting standard is expected to reduce diluted net
earnings per share by approximately $.10.
- For the full fiscal year, the Company
expects the global effective tax rate to be approximately 24%,
before charges associated with the restructuring and other
activities.
- Currency exchange rates are volatile
and difficult to predict. Using the June 30th spot rate, the
negative currency impact equates to about $.20 of earnings per
share.
Reconciliation between GAAP and
non-GAAP
Three Months Ending September 30, 2018 (F)
Three Months September 30 Net Sales Growth
Diluted EPS Change Diluted Earnings Per Share
(Unaudited)
Reported Basis
ConstantCurrency
Reported Basis
ConstantCurrency
2018 (F) 2017 Forecast / actual results
including charges 5-6 %(1) 7-8 %
(6%)-(2
%)(1)
(3%)-2
%
$
1.07- $1.12
(1)
$
1.14
(1)
Non-GAAP
Restructuring and other charges
.10 -.11 .07 Forecast / actual
results excluding charges 5-6 % 7-8 %
(2%)-1
%
1-4% $ 1.18 - $1.22 $ 1.21 Impact from adoption of revenue
recognition accounting standard
2 % 2 %
6
%
6
%
.07 Forecast results excluding adoption
of revenue recognition accounting
standard
7-8 % 9-10 %
3-7
%
7-10
%
$ 1.25 - $1.29 Impact of currency translation on
earnings per share
.04 Forecasted constant currency earnings per share $
1.29 - $1.33 _________________________
(1) Represents GAAP.
(F) Represents forecast
Reconciliation between GAAP and
non-GAAP
Year Ending June 30, 2019 (F) Twelve Months
June 30 Net Sales Growth Diluted EPS
Growth Diluted Earnings Per Share
(Unaudited)
Reported Basis
ConstantCurrency
Reported Basis
ConstantCurrency
2019 (F) 2018 Forecast / actual results
including charges / adjustments 4-5 %(1) 6-7 % 49-53 %(1) 55-60 % $
4.38 - $4.51
(1)
$
2.95
(1)
Non-GAAP
Restructuring and other charges .20 -.24 .51 Contingent
consideration (.09 ) Transition tax resulting from the TCJA .94
Remeasurement of U.S. net deferred tax assets as of the TCJA
enactment date .08 Net deferred tax liability related to foreign
withholding taxes on certain foreign earnings resulting from the
TCJA .12 Forecast
/ actual results adjusted 4-5 % 6-7 % 2-4 % 7-9 % $ 4.62 - $4.71 $
4.51 Impact from adoption of revenue
recognition accounting standard
1 % 1 % 2 % 2 % .10 Forecast results excluding
adoption
of revenue recognition accounting
standard
5-6 % 7-8 % 5-7 % 9-11 % $ 4.72 - $4.81 Impact of currency
translation on earnings
per share
.20 Forecasted constant currency earnings per share $
4.92 - $5.01
_________________________
(1) Represents GAAP.
(F) Represents forecast
Conference Call
The Estée Lauder Companies will host a conference call at 9:30
a.m. (ET) today, August 20, 2018 to discuss its results. The
dial-in number for the call is 888-294-4716 in the U.S. or
706-902-0101 internationally (conference ID number: 10665254). The
call will also be webcast live at
http://www.elcompanies.com/investors/events-and-presentations.
Cautionary Note Regarding
Forward-Looking Statements
The forward-looking statements in this press release, including
those containing words like “expect,” “plans,” “may,” “could,”
“anticipate,” “estimate,” “projected,” “forecasted,” those in Mr.
Freda’s remarks and those in the “Outlook for Fiscal 2019 First
Quarter and Full Year” section involve risks and uncertainties.
Factors that could cause actual results to differ materially from
those forward-looking statements include the following:
(1) increased competitive activity from companies in the
skin care, makeup, fragrance and hair care businesses; (2) the
Company’s ability to develop, produce and market new products on
which future operating results may depend and to successfully
address challenges in the Company’s business; (3) consolidations,
restructurings, bankruptcies and reorganizations in the retail
industry causing a decrease in the number of stores that sell the
Company’s products, an increase in the ownership concentration
within the retail industry, ownership of retailers by the Company’s
competitors or ownership of competitors by the Company’s customers
that are retailers and our inability to collect receivables; (4)
destocking and tighter working capital management by retailers; (5)
the success, or changes in timing or scope, of new product launches
and the success, or changes in the timing or the scope, of
advertising, sampling and merchandising programs; (6) shifts in the
preferences of consumers as to where and how they shop; (7) social,
political and economic risks to the Company’s foreign or domestic
manufacturing, distribution and retail operations, including
changes in foreign investment and trade policies and regulations of
the host countries and of the United States; (8) changes in the
laws, regulations and policies (including the interpretations and
enforcement thereof) that affect, or will affect, the Company’s
business, including those relating to its products or distribution
networks, changes in accounting standards, tax laws and
regulations, environmental or climate change laws, regulations or
accords, trade rules and customs regulations, and the outcome and
expense of legal or regulatory proceedings, and any action the
Company may take as a result; (9) foreign currency fluctuations
affecting the Company’s results of operations and the value of its
foreign assets, the relative prices at which the Company and its
foreign competitors sell products in the same markets and the
Company’s operating and manufacturing costs outside of the United
States; (10) changes in global or local conditions, including those
due to the volatility in the global credit and equity markets,
natural or man-made disasters, real or perceived epidemics, or
energy costs, that could affect consumer purchasing, the
willingness or ability of consumers to travel and/or purchase the
Company’s products while traveling, the financial strength of the
Company’s customers, suppliers or other contract counterparties,
the Company’s operations, the cost and availability of capital
which the Company may need for new equipment, facilities or
acquisitions, the returns that the Company is able to generate on
its pension assets and the resulting impact on funding obligations,
the cost and availability of raw materials and the assumptions
underlying the Company’s critical accounting estimates; (11)
shipment delays, commodity pricing, depletion of inventory and
increased production costs resulting from disruptions of operations
at any of the facilities that manufacture the Company’s products or
at the Company’s distribution or inventory centers, including
disruptions that may be caused by the implementation of information
technology initiatives, or by restructurings; (12) real estate
rates and availability, which may affect the Company’s ability to
increase or maintain the number of retail locations at which the
Company sells its products and the costs associated with the
Company’s other facilities; (13) changes in product mix to products
which are less profitable; (14) the Company’s ability to acquire,
develop or implement new information and distribution technologies
and initiatives on a timely basis and within the Company’s cost
estimates and the Company’s ability to maintain continuous
operations of such systems and the security of data and other
information that may be stored in such systems or other systems or
media; (15) the Company’s ability to capitalize on opportunities
for improved efficiency, such as publicly-announced strategies and
restructuring and cost-savings initiatives, and to integrate
acquired businesses and realize value therefrom; (16) consequences
attributable to local or international conflicts around the world,
as well as from any terrorist action, retaliation and the threat of
further action or retaliation; (17) the timing and impact of
acquisitions, investments and divestitures; and (18) additional
factors as described in the Company’s filings with the Securities
and Exchange Commission, including its Annual Report on Form 10-K
for the fiscal year ended June 30, 2017.
The Company assumes no responsibility to update forward-looking
statements made herein or otherwise.
The Estée Lauder Companies Inc. is one of the world’s leading
manufacturers and marketers of quality skin care, makeup, fragrance
and hair care products. The Company’s products are sold in over 150
countries and territories under brand names including: Estée
Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, Tommy
Hilfiger, M•A•C, Kiton, La Mer, Bobbi Brown, Donna Karan New York,
DKNY, Aveda, Jo Malone London, Bumble and bumble, Michael Kors,
Darphin, Tom Ford, Smashbox, Ermenegildo Zegna, AERIN, Tory Burch,
RODIN olio lusso, Le Labo, Editions de Parfums Frédéric Malle,
GLAMGLOW, By Kilian, BECCA and Too Faced.
ELC-FELC-E
THE ESTÉE LAUDER COMPANIES INC. CONSOLIDATED
STATEMENTS OF EARNINGS (Unaudited; In millions, except per
share data and percentages)
Three Months Ended June
30
Percent Change
Year Ended June 30
Percent Change
2018
2017
2018
2017
Net Sales (A) $ 3,295 $ 2,894 14 % $ 13,683 $ 11,824
16 % Cost of sales (A) 697 613
2,844 2,437
Gross Profit 2,598
2,281 14 % 10,839 9,387
15 %
Gross Margin 78.8 % 78.8 % 79.2 % 79.4 %
Operating expenses: Selling, general and administrative (B)
2,288 1,947 8,556 7,469 Restructuring and other charges (A) 33 73
231 195 Goodwill impairment (C) — 28 — 28 Impairment of other
intangible assets (C) — 3 —
3 2,321 2,051 13 %
8,787 7,695 14 %
Operating
Expense Margin 70.4 % 70.9 % 64.2 % 65.1 %
Operating
Income 277 230 20 % 2,052 1,692 21 %
Operating Income
Margin 8.4 % 7.9 % 15.0 % 14.3 % Interest expense 32 32
128 103 Interest income and investment income, net 16
9 56 28
Earnings
before Income Taxes 261 207 26 % 1,980 1,617 22 %
Provision (benefit) for income taxes (D) 73
(23 ) 863 361
Net Earnings 188
230 (18 %) 1,117 1,256 (11 %) Net earnings attributable to
noncontrolling interests (2 ) (1 ) (9 )
(7 )
Net Earnings Attributable to The Estée Lauder Companies
Inc. $ 186 $ 229
(19
%)
$ 1,108 $ 1,249 (11 %) Net earnings
attributable to The Estée Lauder Companies Inc. per common share:
Basic $ .51 $ .62 (18 %) $ 3.01 $ 3.40 (11 %) Diluted .49 .61 (19
%) 2.95 3.35 (12 %) Weighted average common shares
outstanding: Basic 367.2 368.1 368.0 367.1 Diluted 375.8 374.0
375.7 373.0
(A) In May 2016, the Company announced a multi-year initiative
(Leading Beauty Forward) to build on its strengths and better
leverage its cost structure to free resources for investment to
continue its growth momentum. Leading Beauty Forward is designed to
enhance the Company’s go-to-market capabilities, reinforce its
leadership in global prestige beauty and continue creating
sustainable value. During fiscal 2018, including during the fiscal
2018 fourth quarter, the Company continued to approve specific
initiatives under Leading Beauty Forward. The Company plans to
approve additional initiatives through fiscal 2019 and expects to
complete those initiatives through fiscal 2021. The Company
previously estimated that Leading Beauty Forward would result in
related restructuring and other charges totaling between $600
million and $700 million, before taxes. After reviewing additional
potential initiatives and the progress of previously approved
initiatives under Leading Beauty Forward that are being
implemented, we have revised our estimates for cost approvals under
the program. Inclusive of approvals from inception through June 30,
2018, we now estimate that Leading Beauty Forward may result in
related restructuring and other charges totaling between $900
million and $950 million, before taxes. Once fully implemented,
Leading Beauty Forward is now expected to yield annual net benefits
of between $350 million and $400 million, before taxes, of which a
portion is expected to be reinvested in future growth
initiatives.
THE ESTÉE LAUDER COMPANIES INC.
(B) The Company recorded $37 million and $43 million of income
within selling, general and administrative expenses for the three
and twelve months ended June 30, 2018, respectively, to reflect
changes in the fair value of its contingent consideration related
to certain of its fiscal 2015 and 2016 acquisitions. During the
three and twelve months ended June 30, 2017, the Company recorded
$58 million and $57 million of income, respectively.
(C) The Company performs annual impairment tests for each of its
reporting units. In addition, the Company may perform interim
impairment tests as a result of changes in circumstances and
certain financial indicators. Such tests may conclude that the
carrying value of certain assets exceed their estimated fair
values, resulting in the recognition of impairment charges.
During fiscal 2018, no impairment charges were recognized as a
result of our annual goodwill and other intangible asset impairment
testing. During the fourth quarter of fiscal 2017, the Company
recorded goodwill impairment charges related to the Editions de
Parfums Frédéric Malle and RODIN olio lusso reporting units of $22
million and $6 million, respectively. Additionally, during the
fourth quarter of fiscal 2017, the Company recognized impairment
charges related to the RODIN olio lusso trademark, customer
relationship and persona intangible assets of $3 million.
(D) The three and twelve months ended June 30, 2018 reflects the
reduction of the U.S. statutory tax rate, as well as provisional
amounts for the impact of the TCJA. During the fourth quarter, the
Company recorded a net $58 million charge representing adjustments
to the provisional TCJA amounts it recorded in the fiscal 2018
second and third quarters. For the year ended June 30, 2018, the
TCJA related impacts totaled $450 million, equal to $1.20 per
share. Certain calculations included in these amounts remain
provisional and may require adjustments as anticipated guidance is
issued and as additional analysis of the provisions of the TCJA is
completed. Any such adjustments will be finalized within the
allowable one year measurement period.
THE ESTÉE LAUDER COMPANIES INC.
Total returns and charges associated with restructuring
activities and other adjustments included in net earnings for the
three months and year ended June 30, 2018 and 2017 were:
SalesReturns
Cost ofSales
Operating Expenses Total
After Tax
Diluted Earnings Per
Share
RestructuringCharges
Other Charges/
Adjust-ments
(Unaudited)
(In millions, except per share data)
Three Months Ended June 30,
2018
Leading Beauty Forward
$
8
$ 9 $ 2 $ 31 $ 50 $ 37 $ .10 Contingent consideration
—
— — (37 )
(37
)
(29
)
(.08 ) Transition tax resulting from the TCJA 19 .05
Remeasurement of U.S. net deferred
taxassets as of the TCJA enactment date
(12 ) (.03 )
Net deferred tax liability related to
foreignwithholding taxes on certain foreignearnings resulting from
the TCJA
28
.07 Total $ 8 $ 9 $ 2 $ (6 ) $ 13 $ 43
$ .11
Year Ended June 30, 2018 Leading
Beauty Forward
$
8
$ 18 $ 127 $ 104 $ 257 $ 193 $ .51 Contingent consideration
—
—
— (43 ) (43 )
(33
)
(.09 ) Transition tax resulting from the TCJA 351 .94
Remeasurement of U.S. net deferred
taxassets as of the TCJA enactment date
30 .08
Net deferred tax liability related to
foreignwithholding taxes on certain foreignearnings resulting from
the TCJA
46
.12 Total $ 8 $ 18 $ 127 $ 61 $ 214
$ 587 $ 1.56
Sales Returns
Cost of Sales
Operating Expenses Total
DilutedEarnings Per
Share
Restructuring Charges
Other Charges/
Adjust-ments
(Unaudited)
(In millions, except per share data)
After Tax
Three Months Ended June 30, 2017
Leading Beauty Forward
$
—
$ 5 $ 52 $ 21 $ 78 $ 55 $ .15 Contingent consideration
—
— —
(58
)
(58
)
(42 ) (.11 ) Intangible asset impairments
—
— —
31
31 23 .06
China deferred tax asset
valuationallowance reversal
—
— — — — (75 )
(.20
)
Total
$
—
$ 5 $ 52 $ (6 ) $ 51 $ (39 ) $ (.10 )
Year Ended
June 30, 2017 Leading Beauty Forward
$
2
$ 15 $ 122 $ 73 $ 212 $ 143 $ .38 Contingent consideration
—
— — (57 ) (57 ) (44 ) (.12 ) Intangible asset impairments
—
— — 31 31 23 .06
China deferred tax asset
valuationallowance reversal
—
— — — — (75 )
(.20 ) Total $ 2 $ 15 $ 122 $ 47 $ 186
$ 47 $ .12
THE ESTÉE LAUDER
COMPANIES INC. SUMMARY OF CONSOLIDATED RESULTS
(Unaudited; Dollars in millions) Year Ended
June 30 Net Sales Percent Change
Operating Income (Loss)
Percent Change
2018 2017
Reported Basis
Constant Currency
2018
2017
Reported Basis
Results by
Geographic Region
The Americas $ 5,015 $ 4,819 4 % 4 % $ 211 $ 284 (26 %)
Europe, the Middle East & Africa
5,634 4,650 21 16 1,523 1,203 27 Asia/Pacific 3,042 2,357 29 25 575
417 38 Subtotal 13,691 11,826 16 13 2,309 1,904 21 Returns and
charges associated with restructuring and other activities (8) (2)
(257) (212) Total $ 13,683 $ 11,824 16 % 13 % $ 2,052 $ 1,692 21 %
Results by
Product Category
Skin Care $ 5,595 $ 4,527 24 % 21 % $ 1,511 $ 1,014 49 % Makeup
5,633 5,054 11 9 549 713 (23 ) Fragrance 1,826 1,637 12 8 176 115
53 Hair Care 570 539 6 4 64 51 25 Other 67 69 (3 ) (4 ) 9 11 (18 )
Subtotal 13,691 11,826 16 13 2,309 1,904 21 Returns and charges
associated with restructuring and other activities (8) (2) (257)
(212) Total $ 13,683 $ 11,824 16 % 13 % $ 2,052 $ 1,692 21 %
____________________
This earnings release includes some non-GAAP financial measures
relating to charges associated with restructuring and other
activities, goodwill and other intangible asset impairments, the
changes in the fair value of contingent consideration, the
Transition Tax, the remeasurement of U.S. net deferred tax assets
as of the enactment date of the TCJA and the establishment of a net
deferred tax liability related to foreign withholding taxes on
certain foreign earnings resulting from the TCJA, the China
deferred tax asset valuation allowance reversal, the fiscal 2019
impact of the new revenue recognition accounting standard and the
effects of foreign currency translation. The following is a
reconciliation between the non-GAAP financial measures and the most
directly comparable GAAP measures for certain consolidated
statements of earnings accounts before and after these items. The
Company uses certain non-GAAP financial measures, among other
financial measures, to evaluate its operating performance, which
represent the manner in which the Company conducts and views its
business. Management believes that excluding certain items that are
not comparable from period to period, or reflect the Company’s
underlying ongoing business, provides transparency for such items
and helps investors and others compare and analyze operating
performance from period to period. In the future, the Company
expects to incur charges or adjustments similar in nature to those
presented below; however, the impact to the Company’s results in a
given period may be highly variable and difficult to predict. Our
non-GAAP financial measures may not be comparable to similarly
titled measures used by, or determined in a manner consistent with,
other companies. While the Company considers the non-GAAP measures
useful in analyzing its results, they are not intended to replace,
or act as a substitute for, any presentation included in the
consolidated financial statements prepared in conformity with
GAAP.
The Company operates on a global basis, with the majority of its
net sales generated outside the United States. Accordingly,
fluctuations in currency exchange rates can affect the Company’s
results of operations. Therefore, the Company presents certain net
sales, operating results and diluted earnings per share information
excluding the effect of currency rate fluctuations to provide a
framework for assessing the performance of its underlying business
outside the United States. Constant currency information compares
results between periods as if exchange rates had remained constant
period-over-period. The Company calculates constant currency
information by translating current-period results using prior-year
period weighted average currency exchange rates.
THE ESTÉE LAUDER COMPANIES INC. Reconciliation of
Certain Consolidated Statements of Earnings Accounts Before
and After Returns, Charges and Other Adjustments (Unaudited;
In millions, except per share data and percentages)
Three Months Ended Three Months Ended
June 30, 2018 June 30, 2017
As Reported
Returns/Charges/Adjust-ments
Adjusted
Impact of currency
translation
ConstantCurrency
As Reported
Returns/Charges/Adjust-ments
Adjusted
% Change versus Prior
Year Before Charges
% ChangeConstantCurrency
Net Sales $ 3,295 $ 8 $ 3,303 ($66 ) $ 3,237 $ 2,894 — $ 2,894 14 %
12
%
Cost of sales 697 (9 ) 688
613 (5 ) 608 Gross Profit 2,598
17 2,615 2,281 5 2,286 14 % Gross Margin 78.8 % 79.2 % 78.8 % 79.0
% Operating expenses 2,321 4
2,325 2,051 (46 ) 2,005
16 % Operating Expense Margin 70.4 % 70.4 % 70.9 % 69.3 %
Operating Income 277 13 290 230 51 281 3 % Operating Income
Margin 8.4 % 8.8 % 7.9 % 9.7 % Provision (benefit) for
income taxes 73 (30 ) 43
(23
)
90 67 Net Earnings Attributable to The Estée Lauder Companies Inc.
186 43 229 229 (39 ) 190 21 % Diluted net earnings
attributable to The Estée Lauder Companies Inc. per common share
.49 .11 .61 (.05 ) .56 .61 (.10 ) .51 20 % 11 %
Year Ended June 30, 2018 Year Ended June 30, 2017
As Reported
Returns/Charges/Adjust-ments
Adjusted
Impact of
currencytranslation
ConstantCurrency
As Reported
Returns/Charges/Adjust-ments
Adjusted
% Changeversus PriorYear
BeforeCharges
% ChangeConstantCurrency
Net Sales $ 13,683 $ 8 $ 13,691 ($325 ) $ 13,366 $ 11,824 $ 2 $
11,826 16 % 13 % Cost of sales 2,844 (18 )
2,826 2,437 (15 ) 2,422
Gross Profit 10,839 26 10,865 9,387 17 9,404 16 % Gross
Margin 79.2 % 79.4 % 79.4 % 79.5 % Operating expenses
8,787 (188 ) 8,599 7,695
(169 ) 7,526 14 % Operating Expense Margin
64.2 % 62.8 % 65.1 % 63.6 % Operating Income 2,052 214 2,266
1,692 186 1,878 21 % Operating Income Margin 15.0 % 16.6 % 14.3 %
15.9 % Provision (benefit) for income taxes 863 (373 ) 490
361 139 500 Net Earnings Attributable to The Estée Lauder Companies
Inc. 1,108 587 1,695 1,249 47 1,296 31 % Diluted net
earnings attributable to The Estée Lauder Companies Inc. per common
share 2.95 1.56 4.51 (.20 ) 4.31 3.35 .12 3.47 30 % 24 %
Amounts may not sum due to rounding.
THE ESTÉE LAUDER COMPANIES INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited; In millions)
June 30 June 30
2018
2017
ASSETS Current Assets Cash and cash equivalents $
2,181 $ 1,136 Short-term investments 534 605 Accounts receivable,
net 1,487 1,395 Inventory and promotional merchandise, net 1,618
1,479
Prepaid expenses and other current
assets
348 349
Total Current Assets 6,168 4,964
Property, Plant and Equipment,
net
1,823 1,671
Other Assets 4,576 4,933
Total Assets $
12,567 $ 11,568
LIABILITIES AND EQUITY Current
Liabilities Current debt $ 183 $ 189 Accounts payable 1,182 835
Other accrued liabilities 1,945 1,799
Total Current
Liabilities 3,310 2,823
Noncurrent Liabilities
Long-term debt 3,361 3,383 Other noncurrent liabilities 1,186 960
Total Noncurrent Liabilities 4,547 4,343
Total
Equity 4,710 4,402
Total Liabilities and Equity $ 12,567
$ 11,568
SELECT CASH FLOW DATA (Unaudited;
In millions) Year Ended June 30
2018 2017 Cash Flows from Operating
Activities Net earnings $ 1,117 $ 1,256 Depreciation and
amortization 531 464 Deferred income Taxes 175 (118 ) Other items
175 177 Changes in operating assets and liabilities: Increase in
accounts receivable, net (105 ) (92 ) Increase in inventory and
promotional merchandise, net (147 ) (85 ) Decrease (increase) in
other assets, net 12 (80 ) Increase in accounts payable and other
liabilities 815 278
Net cash flows
provided by operating activities $ 2,573 $ 1,800
Capital expenditures $ 629 $ 504 Acquisition of businesses
11 1,681 Proceeds (purchase) of investments, net (271 ) 41 Payments
to acquire treasury stock 759 413 Dividends paid 546 486 Proceeds
from issuance of long-term debt, net — 1,498
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The Estée Lauder Companies Inc.Investor
Relations:Rainey Mancini, 212-284-3049orMedia
Relations:Alexandra Trower, 212-572-4430
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