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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Estee Lauder Companies Inc | NYSE:EL | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
-2.77 | -2.00% | 135.47 | 138.17 | 135.11 | 138.09 | 903,357 | 18:23:19 |
– Fourth Quarter Reported Net Sales Increased 9%; Up 11% in Constant Currency –
– Full Year Reported Net Sales Rose 5%; Up 7% in Constant Currency –
– Full Year Reported EPS Increased 13%; Adjusted Constant Currency EPS Up 11% –
– Momentum Continues in Fiscal 2018 –
The Estée Lauder Companies Inc. (NYSE:EL) today reported strong financial results for its fourth quarter and fiscal year ended June 30, 2017.
Fabrizio Freda, President and Chief Executive Officer, said, “Throughout the fiscal year, our momentum accelerated, culminating in an outstanding fourth-quarter performance that completed another year of strong net sales and earnings per share growth. These results reflect our success in pivoting our business to the fastest-growing areas of prestige beauty to align with consumers’ changing shopping preferences. With our leading brands, quality innovations and the acquisition of two makeup brands, we attracted new consumers globally. Our business accelerated in our online direct-to-consumer and retailer e-commerce sites, as well as in the travel retail and specialty-multi channels, and we built momentum in key geographies, like China and Italy, aided by enhanced digital and social media communications. Additionally, we began to further improve our organizational efficiency and effectiveness through our Leading Beauty Forward initiative. Importantly, we delivered this performance in the face of external global volatility and one of the biggest moments of change in our industry.”
Mr. Freda continued, “We expect the great momentum we built throughout the past year to continue in fiscal 2018. We are well-positioned to deliver strong profitable growth as we deploy our prestige brand portfolio to new consumers globally through our hero product franchises and robust new product pipeline, new digital-first marketing approach, and focused expansion for our smaller to mid-sized brands.
“In our 2018 fiscal year, we expect to see initial net benefits from our Leading Beauty Forward initiative and we will continue to focus on increasing the efficiency of our operations, eliminating non-value-added costs and generating sales leverage, while strategically reinvesting to support strong and sustainable growth. Our full-year outlook in constant currency reflects net sales growth of 7% to 8%, including incremental sales from our fiscal 2017 acquisitions, and 9% to 11% earnings per share growth. Looking out over the next three years, we continue to target constant currency net sales growth of 6% to 8% and double-digit EPS growth.”
For the three months ended June 30, 2017, the Company reported net sales of $2.89 billion, a 9% increase compared with $2.65 billion in the prior-year period. The recent acquisitions of Too Faced and BECCA performed ahead of plan with incremental sales contributing approximately 3.5 percentage points of the reported sales growth. The Company posted sales growth in most brands and across-the-board sales gains in all geographic regions and product categories, except hair care. Fiscal 2017 fourth quarter sales benefitted from innovative new products and double-digit growth in several developed and emerging markets, particularly China. The Company also generated double-digit gains in its travel retail, online and specialty-multi channels.
Net earnings for the quarter were $229 million, compared with $94 million last year, and diluted net earnings per common share was $.61, compared with $.25 reported in the same prior-year period. These results include the effect of restructuring and other charges, and other adjustments described below.
Excluding the impact of foreign currency translation, net sales increased 11%. For the quarter, the negative impact of foreign currency translation on diluted net earnings per common share was $.01. Adjusting for the restructuring and other charges and the adjustments noted below, diluted net earnings per common share for the three months ended June 30, 2017 was $.51, and in constant currency rose 25%.
For the year, the Company achieved net sales of $11.82 billion, a 5% increase compared with $11.26 billion in the prior year. Incremental sales from the Company’s recent acquisitions of Too Faced and BECCA contributed approximately 2 percentage points of the reported sales growth. Net earnings for the year were $1.25 billion, a 12% increase, compared with $1.11 billion last year, and diluted net earnings per common share rose 13% to $3.35, compared with $2.96 reported in the prior year, including the effect of adverse currency translation, restructuring and other charges and adjustments described below.
Excluding the impact of foreign currency translation, net sales increased 7%. The negative impact of foreign currency translation on diluted net earnings per common share was $.12. Adjusting for the restructuring and other charges and the adjustments noted below, diluted net earnings per common share for the fiscal year ended June 30, 2017 was $3.47, and in constant currency rose 11%. Information about GAAP and non-GAAP financial measures, including reconciliation information, is included in this release.
During the fiscal 2017 fourth quarter, the Company recorded restructuring and other charges of $78 million ($55 million after tax), equal to $.15 per diluted share, in connection with its previously announced Leading Beauty Forward initiative. Additionally, in the fiscal 2017 fourth quarter, the Company recorded adjustments related to fiscal 2015 and 2016 acquisitions and recognized a net gain of $27 million ($19 million after tax), equal to $.05 per share, reflecting changes in fair value of its contingent consideration and charges for the impairment of goodwill and other intangible assets. The Company also recorded a $75 million benefit, equal to $.20 per share, resulting from the reversal of a deferred tax asset valuation allowance related to previously non-deductible advertising and promotional expenses in China.
During fiscal 2017, the Company recorded restructuring and other charges of $212 million ($143 million after tax), equal to $.38 per diluted share, in connection with its Leading Beauty Forward initiative. For the full fiscal year, the net gain recognized for the changes in fair value of the Company’s contingent consideration and charges for the impairment of goodwill and other intangible assets was $26 million ($21 million after tax), equal to $.06 per share.
During the fiscal 2016 fourth quarter, the Company recorded charges of $100 million ($68 million after tax), equal to $.18 per share, in connection with its global technology infrastructure and Leading Beauty Forward initiatives. During fiscal 2016, the Company recorded charges of $134 million ($90 million after tax), equal to $.24 per share, in connection with these initiatives. Additionally, during the 2016 fourth quarter and full year, the Company recorded adjustments of an $8 million gain (equal to $.01 per share) and $8 million of expense (equal to $.02 per share), respectively, for changes in fair value of its acquisition-related contingent consideration. See tables on page 13.
Reconciliation between GAAP and
non-GAAP
Three Months Ended June 30, 2017Three Months
Ended June 30
Net Sales Growth Diluted EPS GrowthDiluted Earnings
Per Share
(Unaudited)Reported
Basis
Constant
Currency
Reported
Basis
Constant
Currency
2017 2016Results including restructuring and other
charges and adjustments
9 %(1) 11 % 100 +%(1) 100 +% $.61 (1) $.25 (1)Non-GAAP
Restructuring and other charges .15 .18 Contingent consideration (.11 ) (.01 ) Intangible asset impairments .06 —China deferred tax asset valuation
allowance reversal
(.20 ) — Adjusted results 9 % 11 % 21 % 25 % .51 $.42Impact of foreign currency on earnings
per share
.01 Constant currency earnings per share $.52Reconciliation between GAAP and
non-GAAP
Year Ended June 30, 2017Year Ended June 30
Net Sales Growth Diluted EPS GrowthDiluted Earnings
Per Share
(Unaudited)Reported
Basis
Constant
Currency
Reported
Basis
Constant
Currency
2017 2016Results including restructuring and other
charges and adjustments
5 %(1) 7 % 13 %(1) 17 % 3.35 (1) $2.96 (1)Non-GAAP
Restructuring and other charges .38 .24 Contingent consideration (.12 ) .02 Intangible asset impairments .06 —China deferred tax asset valuation
allowance reversal
(.20 ) — Adjusted results 5 % 7 % 8 % 11 % 3.47 $3.22Impact of foreign currency on earnings
per share
.12Constant currency earnings per
share
$3.59_________________________
(1) Represents GAAP.
Amounts may not sum due to rounding.
Full Year Results by Product Category
Year Ended June 30 (Unaudited; Dollars in millions) Net Sales Percent ChangeOperating
Income (Loss)
Percent
Change
2017 2016Reported
Basis
Constant
Currency
2017 2016Reported
Basis
Skin Care $ 4,527 $ 4,446 2 % 3 % $ 1,014 $ 842 20 % Makeup 5,054 4,702 7 9 713 758 (6 ) Fragrance 1,637 1,487 10 13 115 87 32 Hair Care 539 554 (3 ) (2 ) 51 52 (2 ) Other 69 74 (7 ) (7 ) 11 5 100 + Subtotal 11,826 11,263 5 7 1,904 1,744 9Returns and charges associated withrestructuring and other activities
(2 ) (1 ) (212 ) (134 ) Total $ 11,824 $ 11,262 5 % 7 % $ 1,692 $ 1,610 5 %Net sales and operating income in the Company’s product categories were unfavorably impacted by the strength of the U.S. dollar in relation to most currencies. Total operating income in constant currency, before charges and other adjustments, increased 11%.
Skin Care
Makeup
Fragrance
Hair Care
Full Year Results by Geographic Region
Year Ended June 30 (Unaudited; Dollars in millions) Net Sales Percent ChangeOperating
Income (Loss)
Percent
Change
2017 2016Reported
Basis
Constant
Currency
2017 2016Reported
Basis
The Americas $ 4,819 $ 4,710 2 % 2 % $ 284 $ 346 (18 )% Europe, the Middle East & Africa 4,650 4,381 6 10 1,203 1,027 17 Asia/Pacific 2,357 2,172 9 9 417 371 12 Subtotal 11,826 11,263 5 7 1,904 1,744 9Returns and charges associated withrestructuring and other activities.
(2 ) (1 ) (212 ) (134 ) Total $ 11,824 $ 11,262 5 % 7 % $ 1,692 $ 1,610 5 %Net sales and operating income in the Company’s geographic regions were unfavorably impacted by the strength of the U.S. dollar in relation to most currencies.
The Americas
Europe, the Middle East & Africa
Asia/Pacific
Cash Flows from Operating Activities
Reconciliation between GAAP and non-GAAP
Net Cash Flows ProvidedBy Operating Activities
Year Ended June 30Percent
Change
(Unaudited; Dollars in millions) 2017 2016 Results as reported $1,800 (1) $1,789 (1) 1%Non-GAAP
Impact of Leading Beauty Forward 106 — Results excluding Leading Beauty Forward $1,906 $1,789 7%_________________________
(1) Represents GAAP.
Outlook for Fiscal 2018 First Quarter and Full Year
Global prestige beauty remains vibrant and is estimated to grow approximately 4% to 5% during the year. The Company’s annual growth has consistently outpaced global prestige beauty and is expected to continue to grow at least two percentage points ahead of the industry for fiscal 2018. The Company expects sales growth to benefit from high-quality products, strong innovation, outreach to new target consumers and growth from recent acquisitions, while continuing to pivot to a digital-first marketing approach and fast-growing markets and channels as consumer preferences evolve.
We are mindful of risks related to social and political issues, geopolitical tensions, terrorism, currency volatility and economic challenges affecting consumer spending in certain countries. The Company is also cautious of the decline in retail traffic, primarily related to some brick-and-mortar department stores and certain tourist-driven doors in the United States.
Full Year Fiscal 2018
First Quarter Fiscal 2018
non-GAAP
Three Months Ending September 30, 2017 (F) Three Months September 30 Net Sales Growth Diluted EPS Growth Diluted Earnings Per Share (Unaudited)Reported
Basis
Constant
Currency
Reported
Basis
Constant
Currency
2017 (F) 2016 Forecast / actual results including charges 9-10 %(1) 9-10 % 8-13 %(1) 8-13 % $.85- $.89 (1) $.79 (1)Non-GAAP
Restructuring and other charges .08 -.09 .05 Forecast / actual results excluding charges 9-10 % 9-10 % 12-15 % 12-15 % $.94 - $.97 $.84 Impact of foreign currency on earningsper share
—Forecasted constant currency earnings pershare
$.94 - $.97_________________________
(1) Represents GAAP.
(F) Represents forecast
Reconciliation between GAAP andnon-GAAP
Year Ending June 30, 2018 (F) Twelve Months June 30 Net Sales Growth Diluted EPS Growth Diluted Earnings Per Share (Unaudited)Reported
Basis
Constant
Currency
Reported
Basis
Constant
Currency
2018 (F) 2017Forecast / actual results including charges /adjustments
8-9 %(1) 7-8 % 7-10 %(1) 5-8 % $3.60 - $3.70 (1) $3.35 (1)Non-GAAP
Restructuring and other charges .24 -.27 .38 Contingent consideration (.12 ) Intangible asset impairments .06China deferred tax asset valuation allowancereversal
(.20 ) Forecast / actual results adjusted 8-9 % 7-8 % 11-13 % 9-11 % $3.87 - $3.94 $3.47Impact of foreign currency on earningsper share
(.09 )Forecasted constant currency earnings pershare
$3.78 - $3.85_________________________
(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 18, 2017 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: 65289585). 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 2018 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, and other factors 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 its 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 nearly all of the Company’s supply of a particular type of product (i.e. focus factories) 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 attack, retaliation or similar threats; (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, 2016.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
2017 2016 2017 2016 Net Sales (A) $ 2,894 $ 2,646 9% $ 11,824 $ 11,262 5% Cost of sales (A) 613 511 2,437 2,181 Gross Profit 2,281 2,135 7% 9,387 9,081 3% Gross Margin 78.8 % 80.7 % 79.4 % 80.6 % Operating expenses: Selling, general and administrative (B) 1,947 1,893 7,469 7,338 Restructuring and other charges (A) 73 99 195 133 Goodwill impairment (C) 28 — 28 — Impairment of other intangible assets (C) 3 — 3 — 2,051 1,9923%
7,695 7,4713%
Operating Expense Margin 70.9 % 75.3 % 65.1 % 66.3 % Operating Income 230 143 61% 1,692 1,610 5% Operating Income Margin 7.9 % 5.4 % 14.3 % 14.3 % Interest expense 32 19 103 71 Interest income and investment income, net 9 6 28 16 Earnings before Income Taxes 207 130 59% 1,617 1,555 4% Provision (benefit) for income taxes (D) (23 ) 35 361 434 Net Earnings 230 95 100+% 1,256 1,121 12% Net earnings attributable to noncontrolling interests (1 ) (1 ) (7 ) (6 )Net Earnings Attributable to The Estée Lauder Companies Inc.
$ 229 $ 94100+%
$ 1,249 $ 1,115 12%Net earnings attributable to The Estée Lauder Companies Inc. per common share:
Basic $ .62 $ .25 100+% $ 3.40 $ 3.01 13% Diluted .61 .25 100+% 3.35 2.96 13% Weighted average common shares outstanding: Basic 368.1 368.8 367.1 370.0 Diluted 374.0 375.8 373.0 376.6(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 2017, including during the fiscal 2017 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 expects Leading Beauty Forward will result in related restructuring and other charges totaling between $600 million and $700 million, before taxes. Once fully implemented, Leading Beauty Forward is expected to yield annual net benefits of between $200 million and $300 million, before taxes, of which a portion is expected to be reinvested in future growth initiatives.
During fiscal 2016, as part of the Company’s ongoing initiative to upgrade and modernize its systems and processes, the Company transitioned its global technology infrastructure (GTI) to fundamentally change the way it delivers information technology services internally. This initiative is expected to result in operational efficiencies and reduce the Company’s information technology service and infrastructure costs in the future. The implementation of this initiative was substantially completed during fiscal 2016.
THE ESTÉE LAUDER COMPANIES INC.
(B) In June 2017, the Company revised and approved financial projections for certain of its fiscal 2015 and 2016 acquisitions. In the process, the Company noted that actual results and the most recent projections were lower during their respective earn-out measurement periods than the financial targets made at June 30, 2016 and it reassessed the likelihood of achieving those targets. As a result, the Company recognized a $58 million gain within selling, general and administrative expenses, to reflect the adjusted fair value of its contingent consideration, primarily related to the acquisitions of GLAMGLOW, Editions de Parfums Frédéric Malle and Le Labo as of June 30, 2017. The gain recognized for the 2017 full fiscal year was $57 million.
(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 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) In the fourth quarter of fiscal 2017, China enacted a favorable change to its tax law that expanded the corporate income tax deduction allowance for advertising and promotional expenses. As a result of the new law, in the fourth quarter of fiscal 2017, the Company released into income its previously established deferred tax asset valuation allowance of approximately $75 million related to its accumulated carryforward of excess advertising and promotional expenses.
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, 2017 and 2016 were:
Sales
Returns
Cost of
Sales
Operating Expenses TotalAfter
Tax
Diluted
Earnings
Per Share
Restructuring
Charges
Other
Charges/
Adjust-
ments
(Unaudited) (In millions, except per share data)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 .06China 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 .06China deferred tax asset valuation
allowance reversal
— — — ——
(75 ) (.20 ) Total $2 $15 $122 $ 47 $186 $ 47 $ .12
Sales
Returns
Cost of
Sales
Operating Expenses TotalAfter
Tax
Diluted
Earnings
Per Share
Restructuring
Charges
Other
Charges/
Adjust-
ments
(Unaudited) (In millions, except per share data)Three Months Ended June 30, 2016
Global Technology Infrastructure
$— $— $17 $ 3 $ 20 $12 $.03 Leading Beauty Forward 1 — 75 4 80 56 .15 Contingent consideration — — — (8 )(8
)
(4 )(.01
)
Total $1 $— $92 $ (1 ) $ 92 $64 $.17 Year Ended June 30, 2016 Global Technology Infrastructure $— $— $46 $ 7 $ 53 $34 $.09 Leading Beauty Forward 1 — 75 5 81 56 .15 Contingent consideration — — — 8 8 8 .02 Total $1 $— $121 $20 $142 $98 $.26THE ESTÉE LAUDER COMPANIES INC.
SUMMARY OF CONSOLIDATED RESULTS
(Unaudited; Dollars in millions)
Three Months Ended June 30 Net Sales Percent ChangeOperating
Income (Loss)
Percent
Change
2017 2016Reported
Basis
Constant
Currency
2017
2016
Reported
Basis
Results by Geographic Region
The Americas $ 1,173 $ 1,103 6 % 6 % $ 48 $ 36 33 % Europe, the Middle East & Africa. 1,173 1,073 9 12 247 184 34 Asia/Pacific 548 471 16 18 13 23 (43 ) Subtotal 2,894 2,647 9 11 308 243 27Returns and charges associated with
restructuring and other activities
— (1 ) (78 ) (100 ) Total $ 2,894 $ 2,646 9 % 11 % $ 230 $ 143 61 %Results by Product Category
Skin Care $ 1,072 $ 1,032 4 % 6 % $ 186 $ 141 32 % Makeup 1,311 1,128 16 18 151 116 30 Fragrance 362 328 10 12 (42 ) (27 ) (56 ) Hair Care 140 143 (2 ) (1 ) 13 16 (19 ) Other 9 16 (44 ) (44 ) — (3 ) 100 Subtotal 2,894 2,647 9 11 308 243 27Returns and charges associated with
restructuring and other activities
— (1 ) (78 ) (100 ) Total $ 2,894 $ 2,646 9 % 11 % $ 230 $ 143 61 %_________________________
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 and the China deferred tax asset valuation allowance reversal. 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 foreign 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 foreign 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 foreign 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
June 30, 2017
Three Months EndedJune 30, 2016
As
Reported
Returns/
Charges/
Adjust-
ments
AdjustedImpact of
foreign
currency
translation
Constant
Currency
As
Reported
Returns/
Charges/
Adjust-
ments
Adjusted% Change
versus Prior
Year Before
Charges
% Change
Constant
Currency
Net Sales $ 2,894 $— $ 2,894 $43 $2,937 $ 2,646 $1 $ 2,647 9% 11% Cost of sales 613 (5 ) 608 511 — 511 Gross Profit 2,281 5 2,286 2,135 1 2,136 7% Gross Margin 78.8 % 79.0 % 80.7 % 80.7 % Operating expenses 2,051 (46 ) 2,005 1,992(91
)
1,901 5% Operating Expense Margin 70.9 % 69.3 % 75.3 % 71.8 % Operating Income 230 51 281 143 92 235 20% Operating Income Margin 7.9 % 9.7 % 5.4 % 8.9 %Provision (benefit) for income taxes
(23
)
90
67 35 28 63Net Earnings Attributable to The Estée Lauder Companies Inc.
229 (39 ) 190 94 64 158 20%Diluted net earnings attributable to The Estée Lauder Companies Inc. per common share
.61 (.10 ) .51 .01 .52 .25 .17 .42 21% 25% Year Ended June 30, 2017 Year Ended June 30, 2016As
Reported
Returns/
Charges/
Adjust-
ments
AdjustedImpact of
foreign
currency
translation
Constant
Currency
As
Reported
Returns/
Charges/
Adjust-
ments
Adjusted% Change
versus Prior
Year Before
Charges
% Change
Constant
Currency
Net Sales $ 11,824 $2 $ 11,826 $187 $12,013 $ 11,262 $1 $11,263 5% 7% Cost of sales 2,437 (15 ) 2,422 2,181 — 2,181 Gross Profit 9,387 17 9,404 9,081 1 9,082 4% Gross Margin 79.4 % 79.5 % 80.6 % 80.6 % Operating expenses 7,695 (169 ) 7,526 7,471 (141 ) 7,330 3% Operating Expense Margin 65.1 % 63.6 % 66.3 % 65.0 % Operating Income 1,692 186 1,878 1,610 142 1,752 7% Operating Income Margin 14.3 % 15.9 % 14.3 % 15.6 %Provision for income taxes
361 139 500 434 44 478Net Earnings Attributable to The Estée Lauder Companies Inc.
1,249 47 1,296 1,115 98 1,213 7%Diluted net earnings attributable to The Estée Lauder Companies Inc. per common share
3.35 .12 3.47 .12 3.59 2.96 .26 3.22 8% 11%THE ESTÉE LAUDER COMPANIES INC.
The impact on operating results for the adjustments related to the changes in fair value of contingent consideration and the goodwill and other intangible asset impairments by product category and geographic region for the three months and year ended June 30, 2017 and 2016 is as follows:
Operating Results
Three Months Ended June 30, 2017
Year Ended June 30, 2017
Three
Months
EndedJune 30,
2016
Year
EndedJune 30,
2016
(Unaudited; In millions)Contingent
Consideration
Intangible
Asset
Impairments
Net
Impact
Contingent
Consideration
Intangible
Asset
Impairments
Net
Impact
Contingent
Consideration
By Product Category: Skin Care $(31 ) $9 $(22 ) $(24 ) $9 $(15 ) $(14 ) $(5 ) Fragrance (27 ) 22 (5 ) (33 ) 22 (11 ) 6 13 Total $(58 ) $31 $(27 ) $(57 ) $31 $(26 ) $(8 ) $8 By Geographic Region: The Americas $(46 ) $17 $(29 ) $(43 ) $17 $(26 ) $(12 ) $— Europe, the Middle East & Africa (12 ) 14 2 (14 ) 14 — 4 8 Total $(58 ) $31 $(27 ) $(57 ) $31 $(26 ) $(8 ) $8Excluding the impact of the charges associated with restructuring and other activities, the changes in fair value of contingent consideration and the goodwill and other intangible asset impairments, operating results for the three months and year ended June 30, 2017 would have increased/(decreased) as follows:
Operating Results (Unaudited)Three Months
EndedJune 30, 2017
Year EndedJune 30, 2017 By Product Category: Skin Care 29% 19% Fragrance (100)+% 4% By Geographic Region: The Americas (21)% (25)% Europe, the Middle East & Africa 32% 16%Total operating income in constant currency for the three months and year ended June 30, 2017, excluding the impact of the above adjustments, increased 24% and 11%, respectively.
THE ESTÉE LAUDER COMPANIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; In millions)
June 30
2017
June 30
2016
ASSETS Current Assets Cash and cash equivalents $ 1,136 $ 914 Short-term investments 605 469 Accounts receivable, net 1,395 1,258 Inventory and promotional merchandise, net 1,479 1,264Prepaid expenses and other current assets
349 320 Total Current Assets 4,964 4,225Property, Plant and Equipment, net
1,671 1,583 Other Assets 4,933 3,415 Total Assets $ 11,568 $ 9,223 LIABILITIES AND EQUITY Current Liabilities Current debt $ 189 $ 332 Accounts payable 835 717 Other accrued liabilities 1,799 1,632 Total Current Liabilities 2,823 2,681 Noncurrent Liabilities Long-term debt 3,383 1,910 Other noncurrent liabilities 960 1,045 Total Noncurrent Liabilities 4,343 2,955 Total Equity 4,402 3,587 Total Liabilities and Equity $ 11,568 $ 9,223SELECT CASH FLOW DATA
(Unaudited; In millions)
Year Ended June 30 2017 2016 Cash Flows from Operating Activities Net earnings $ 1,256 $ 1,121 Depreciation and amortization 464 415 Deferred income Taxes (118 ) (94 ) Other items 177 202 Changes in operating assets and liabilities: Increase in accounts receivable, net (92 ) (101 ) Increase in inventory and promotional merchandise, net (85 ) (69 ) Increase in other assets, net (80 ) (72 ) Increase in accounts payable and other liabilities 278 387 Net cash flows provided by operating activities $ 1,800 $ 1,789 Capital expenditures $ 504 $ 525 Acquisition of businesses 1,681 101 Purchase of investments, net 41 643 Payments to acquire treasury stock 413 890 Dividends paid 486 423 Proceeds from issuance of long-term debt, net 1,498 616
View source version on businesswire.com: http://www.businesswire.com/news/home/20170818005088/en/
The Estée Lauder Companies Inc.Investor Relations:Dennis D’Andrea, 212-572-4384orMedia Relations:Alexandra Trower, 212-572-4430
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