Estée Lauder Companies’ share price took a nose dive following the release of Q2 results showing a drop in earnings, but the verdict of financial analysts is mixed.
The company’s share price dropped from $69.19 on February 4th, to hit $64.19 a share on the day that the results were announced. The share price has subsequently recovered slightly and is now trading at $66.58 in early morning trading today.
The official word from analysts at Credit Suisse was that investors had overreacted to the drop in profits, stressing that the company still delivered high quality results that were based on a well-diversified portfolio.
Analysts believe falling share price was an over-reaction
Citi Research analyst Wendy Nicholson commented that the plunge in share prices was understandable, given the drop in earnings, but said that initial reaction was ‘overdone’, which is why she is currently maintaining a ‘buy’ rating on the stock.
Net earnings for the quarter were down 3% to $432.5 million, compared with $447.5 million last year, whilst net sales were $3.02 billion, a 3% increase, with the Americas and EMEA offsetting poor results in Asia Pacific.
The hit on profits came off the back of increased investment spending and an adjustment made in the prior-year period related to the overstatement of accounts payable balances.
Soft earnings in Europe countered by emerging markets
On the sales side, earnings were soft in European, which continues to suffer from the weakened economy in the southern part of the region, but strong gains in the emerging markets continued to more than counterbalance the overall results.
Besides the emerging markets, the company also flagged up that key sales gains in the quarter were the United States and the United Kingdom, our luxury and makeup artist brands, and online and travel retail channels.
Looking ahead, the company believes it is still in a strong position to meet its full year objectives, reflecting analysts' opinion about its diversified portfolio and strong financial foundations.
Company stands by full-year expectations
"Our fiscal second quarter sales growth was in line with our expectations, despite softer than expected markets in some geographies,” says Fabrizio Freda, President and Chief Executive Officer of Estee Lauder
“These results confirm that our business strategy is sound and effective. Underscoring our sustainable growth is our strong and diverse portfolio of brands that is balanced by geography, product category and channel.”