A strengthening US dollar could spell tougher times for Estee Lauder

By Simon Pitman

- Last updated on GMT

Related tags: Estée lauder, Currency

As the US dollar continues to gain in strength against many international currencies, macroeconomic forces could jeopardise the performance of US-based Estee Lauder.

Evidence of this has been confirmed as New York-based analysts Oppenheimer announced that it is downgrading the rating for one of the world’s leading prestige cosmetics players.

Oppenheimer said it was reducing Estee Lauder’s rating from ‘perform’ to ‘underperform’ and cited the company’s exposure to unfavorable currency fluctuations in the light of the recent trend in international currency movements.

Although Oppenheimer conceded that visibility was limited at the moment, financial experts at the company said that there was the possibility that share dividends and profitablity could firm in the future.

Financial visibility is difficult

For the moment, Oppenheimer will remain ‘on the sidelines’ according to its analysts, and that Estee Lauder is ‘not recommended at this time’ to investors.

Estee Lauder has enjoyed stronger financial results during the last two quarters, thanks to consumers resuming their pre-recession spending patterns, as well as the fact that restructuring efforts have helped to cut back costs.

At the beginning of the year the company forecast that the full fiscal year 2010 would bring revenue growth of 3 – 5 percent, which should see sales in the region of $7.54bn - $7.69bn.

The company said that the sales would likely be led by the Asia-Pacific region, and in particular the fast growing China market, backed up by Europe.

However, with the US dollar continuing to gain strength on the international money markets, currency translations are likely to subdue these earlier expectations for sales in those international markets.

Indeed, Estee Lauder is not the only cosmetics company with significant exposure in international markest. Other big players that may be coming under similar pressures include Procter & Gamble, Colgate-Palmolive and Avon.

Related topics: Business & Financial

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