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Business Wire 19-Aug-2019 6:45 AM
Fourth Quarter and Full Year Net Sales Increased 9%; Up 12% in Constant Currency Before Impact of New Revenue Accounting Standard
Full Year Diluted EPS Increased to $4.82 and Adjusted Diluted EPS Rose 21% in Constant Currency Before Impact of New Revenue Accounting Standard
Strong Growth Expected in Fiscal 2020
The Estée Lauder Companies Inc. (NYSE:EL) today reported outstanding financial results for its fiscal year ended June 30, 2019. Net sales of $14.86 billion increased 9% from $13.68 billion in the prior year. The Company posted net sales growth in its international business and nearly all product categories. Excluding the negative impact of currency translation ($371 million, or 2%) and the adoption of the new revenue recognition accounting standard ("ASC 606") ($49 million, or less than 1%), net sales increased 12%.
Net earnings rose to $1.79 billion from $1.11 billion last year. Diluted net earnings per common share increased to $4.82 compared with $2.95 reported in the prior year. Excluding the negative impact of currency translation, the benefit from the adoption of ASC 606 and other items detailed on page 3, adjusted diluted earnings per common share increased 21%.
Fabrizio Freda, President and Chief Executive Officer, said, "Fiscal 2019 was an outstanding year for our Company. We achieved strong net sales gains across our business, fueled by investments in our strategic priorities, including improved data analytics that helped power our innovation and digital marketing. Our winning strategy led to continued share gains in global prestige beauty.
"With savings from our Leading Beauty Forward initiative and cost discipline throughout the organization, we grew profit far ahead of our net sales growth, while also investing in our strategic priorities.
"Many engines drove our growth. They included: nearly every market in the Asia/Pacific region and many other important emerging markets around the world; our skin care category in every region; the travel retail and online channels globally; and compelling innovations and high-quality products, which drove strong repeat purchases. Globally, three of our four largest brands grew strongly as did many of our small and mid-sized brands. Our results were particularly impressive given macro volatility and challenges in several key markets demonstrating our successful strategy of multiple engines of growth and our agility to reallocate resources to the best opportunities."
Mr. Freda added, "Importantly, this year's results cap a remarkable decade of strategic and operating achievements. Since launching our current strategy in 2009, we have diversified and strengthened our Company, creating a solid foundation to continue our growth.
"We ended the year with a strong fourth quarter, driven largely by the same growth engines we had throughout the year. Additionally, we saw modest improvement in our U.S. business despite a tough retail environment.
"Prestige beauty continues to be one of the most desirable consumer sectors. As the best diversified pure play in the industry, we are uniquely positioned to capture global share. In fiscal 2020, we plan to continue to invest in the most compelling opportunities, including those in emerging markets beyond China. We expect another year of strong net sales growth, margin improvement and a double-digit increase in earnings per share."
Adjusted diluted earnings per common share excludes restructuring and other charges, changes in contingent consideration, the net gain on the liquidation of an investment in a foreign subsidiary, goodwill and other intangible asset impairments and provisional charges related to the Tax Cuts and Jobs Act ("TCJA") which were finalized during fiscal 2019. See details in the following table.
Year Ended June 30, 2019 |
Year Ended June 30 |
|||||||||||||||||||
Net Sales Growth |
Diluted EPS Growth |
Diluted Earnings Per Share |
||||||||||||||||||
(Unaudited) |
Reported Basis(1) |
Constant Currency |
Reported Basis(1) |
Constant Currency |
2019 |
2018 |
||||||||||||||
As Reported Results |
9 |
% |
11 |
% |
63 |
% |
70 |
% |
$ |
|
4.82 |
|
$ |
|
2.95 |
|
||||
Restructuring and other charges |
.51 |
|
.51 |
|
||||||||||||||||
Contingent consideration |
(.08 |
) |
(.09 |
) |
||||||||||||||||
Gain on liquidation of an investment in a foreign subsidiary, | ||||||||||||||||||||
net |
(.15 |
) |
- |
|
||||||||||||||||
Goodwill and other intangible asset impairments |
.23 |
|
- |
|
||||||||||||||||
Transition Tax resulting from the TCJA |
(.03 |
) |
.94 |
|
||||||||||||||||
Remeasurement of U.S. net deferred tax assets as of the TCJA |
|
|
|
|
|
|
||||||||||||||
enactment date |
.02 |
|
.08 |
|
||||||||||||||||
Net deferred tax liability related to foreign withholding | ||||||||||||||||||||
taxes on certain foreign earnings resulting from the TCJA |
.02 |
|
.12 |
|
||||||||||||||||
Non-GAAP |
11 |
% |
22 |
% |
5.34 |
|
$ |
|
4.51 |
|
||||||||||
Impact of adoption of ASC 606 |
- |
% |
(.04 |
) |
||||||||||||||||
Non-GAAP, excluding impact of adoption of ASC 606 |
12 |
% |
5.29 |
|
||||||||||||||||
Impact of foreign currency on earnings per share |
.19 |
|
||||||||||||||||||
Non-GAAP, constant currency earnings per share, | ||||||||||||||||||||
excluding the impact of adoption of ASC 606 |
21 |
% |
$ |
|
5.48 |
|
||||||||||||||
(1) Represents GAAP | ||||||||||||||||||||
Amounts may not sum due to rounding. | ||||||||||||||||||||
Net sales and operating income in the Company's product categories and regions were impacted by a stronger U.S. dollar in relation to most currencies, as well as the adoption of ASC 606. The discussion of the Company's net sales and operating results is based on specific markets in commercially concentrated locations, which may include separate discussions on territories within a country.
Results by Product Category |
||||||||||||||||||||
Year Ended June 30 |
||||||||||||||||||||
Net Sales |
Percent Change |
Operating Income (Loss) |
Percent Change |
|||||||||||||||||
(Unaudited; $ in millions) |
2019 |
2018 |
Reported Basis |
Constant Currency |
Constant Currency, excl ASC 606 |
2019 |
2018 |
Reported Basis |
||||||||||||
Skin Care |
$ |
6,551 |
|
$ |
5,595 |
|
17 |
% |
20 |
% |
21 |
% |
$ |
1,925 |
|
$ |
1,514 |
|
27 |
% |
Makeup |
5,860 |
|
5,633 |
|
4 |
|
7 |
|
7 |
|
438 |
|
549 |
|
(20 |
) |
||||
Fragrance |
1,802 |
|
1,826 |
|
(1 |
) |
1 |
|
2 |
|
140 |
|
176 |
|
(20 |
) |
||||
Hair Care |
584 |
|
570 |
|
2 |
|
4 |
|
4 |
|
39 |
|
64 |
|
(39 |
) |
||||
Other |
69 |
|
67 |
|
3 |
|
4 |
|
- |
|
12 |
|
9 |
|
33 |
|
||||
Subtotal |
14,866 |
|
13,691 |
|
9 |
|
11 |
|
12 |
|
2,554 |
|
2,312 |
|
10 |
|
||||
Returns/charges associated with | ||||||||||||||||||||
restructuring and other activities |
(3 |
) |
(8 |
) |
(241 |
) |
(257 |
) |
||||||||||||
Total |
$ |
14,863 |
|
$ |
13,683 |
|
9 |
% |
11 |
% |
12 |
% |
$ |
2,313 |
|
$ |
2,055 |
|
13 |
% |
Total reported operating income was $2.31 billion, a 13% increase from $2.06 billion in the prior year. Operating income increased 18% excluding (1) the adoption of ASC 606 that increased operating income by $21 million, (2) restructuring and other charges and adjustments of $204 million compared to $214 million in the prior-year period, (3) goodwill and other intangible asset impairments related to Smashbox of $90 million and (4) the unfavorable impact of currency translation of $89 million. The improvement in operating income largely reflected higher net sales and disciplined expense management throughout the business.
Skin Care
Makeup
Fragrance
Hair Care
Results by Geographic Region |
|||||||||||||||||||||
Year Ended June 30 |
|||||||||||||||||||||
Net Sales |
Percent Change |
Operating Income (Loss) |
Percent Change |
||||||||||||||||||
(Unaudited; $ in millions) |
2019 |
2018 |
Reported Basis |
Constant Currency |
Constant Currency, excl ASC 606 |
2019 |
2018 |
Reported Basis |
|||||||||||||
The Americas |
$ |
4,741 |
$ |
5,015 |
(5 |
)% |
(5 |
)% |
(4 |
)% |
$ |
(194 |
) |
$ |
211 |
>(100 |
)% |
||||
Europe, the Middle East & Africa |
6,452 |
|
5,634 |
|
15 |
|
18 |
|
18 |
|
2,019 |
|
1,526 |
|
32 |
|
|||||
Asia/Pacific |
3,673 |
|
3,042 |
|
21 |
|
25 |
|
25 |
|
729 |
|
575 |
|
27 |
|
|||||
Subtotal |
14,866 |
|
13,691 |
|
9 |
|
11 |
|
12 |
|
2,554 |
|
2,312 |
|
10 |
|
|||||
Returns/charges associated with | |||||||||||||||||||||
restructuring and other activities |
(3 |
) |
(8 |
) |
(241 |
) |
(257 |
) |
|||||||||||||
Total |
$ |
14,863 |
|
$ |
13,683 |
|
9 |
% |
11 |
% |
12 |
% |
$ |
2,313 |
|
$ |
2,055 |
|
13 |
% |
|
The Americas
Europe, the Middle East & Africa
Asia/Pacific
Cash Flows from Operating Activities
Fourth Quarter Results
Outlook for Fiscal 2020 First Quarter and Full Year
The Company continues to see strong consumer demand for its high-quality products and for the fiscal year expects to grow ahead of the industry and to continue building global share. The Company expects global prestige beauty to grow approximately 6-7% during the fiscal year, assuming no additional geopolitical risk materializes. However, the Company is mindful of risks related to social, economic and political issues, including geopolitical tensions, regulatory matters, global security issues, currency volatility and economic challenges that could affect consumer spending in certain countries and travel corridors.
Given this environment, the Company has reflected the following risks in its outlook:
In addition, there will be no adjustments relating to ASC 606 as fiscal 2020 will be under the same basis of revenue recognition accounting as fiscal 2019.
First Quarter Fiscal 2020
Sales Outlook
Earnings per Share Outlook
Full Year Fiscal 2020
Sales Outlook
Earnings per Share Outlook
Reconciliation between GAAP and non-GAAP | ||||||||||||||
Three Months Ending September 30, 2019 (F) | Three Months September 30 | |||||||||||||
Net Sales Growth |
Diluted EPS Growth |
Diluted Earnings Per Share |
||||||||||||
(Unaudited) |
Reported Basis |
Constant Currency |
Reported Basis |
Constant Currency |
2019 (F) |
2018 |
||||||||
Forecast / actual results including restructuring | ||||||||||||||
and other charges and adjustments | 9%-10% |
(1) |
9%-10% | 10%-13% |
(1) |
10%-13% |
$1.48-$1.52(1) |
$ |
1.34 |
(1) |
||||
Non-GAAP | ||||||||||||||
Restructuring and other charges |
.07 - .08 |
|
.10 |
|||||||||||
Contingent Consideration |
- |
|
|
(.02 |
) | |||||||||
TCJA Impacts |
- |
|
|
(.01 |
) | |||||||||
Non-GAAP | 11%-13% |
$1.56-$1.59 |
$ |
1.41 |
||||||||||
Impact of foreign currency on earnings per share |
(.01 |
) |
||||||||||||
Forecasted constant currency net sales growth | ||||||||||||||
and earnings per share | 9%-10% | 10%-12% |
$1.55-$1.58 |
|||||||||||
Year Ending June 30, 2020 (F) | Twelve Months June 30 | |||||||||||||
Net Sales Growth |
Diluted EPS Growth |
Diluted Earnings Per Share |
||||||||||||
(Unaudited) |
Reported Basis |
Constant Currency |
Reported Basis |
Constant Currency |
2020 (F) |
2019 |
||||||||
Forecast / actual results including restructuring | ||||||||||||||
and other charges and adjustments | 7%-8% |
(1) |
7%-8% | 17%-19% |
(1) |
16%-18% |
$5.62-$5.74(1) |
$ |
4.82 |
(1) |
||||
Non-GAAP | ||||||||||||||
Restructuring and other charges |
.24 - .28 |
|
.51 |
|||||||||||
Contingent Consideration | - |
|
|
(.08 |
) |
|||||||||
Gain on liquidation of an investment in a foreign | ||||||||||||||
subsidiary, net |
- |
|
|
(.15 |
) |
|||||||||
Intangible Asset Impairments) |
- |
|
|
.23 |
||||||||||
TCJA Impacts |
- |
|
|
.01 |
||||||||||
Non-GAAP | 10%-12% |
$5.90-$5.98 |
$ |
5.34 |
||||||||||
Impact of foreign currency on earnings per share |
(.05 |
) |
||||||||||||
Forecasted constant currency net sales growth | ||||||||||||||
and earnings per share | 7%-8% | 9%-11% |
$5.85-$5.93 |
|||||||||||
(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 19, 2019 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: 9999544). The call will also be webcast live at http://www.elcompanies.com/investors/events-and-presentations.
Cautionary Note Regarding Forward-Looking Statements
Statements in this press release, in particular those in "Outlook for Fiscal 2020 First Quarter and Full Year," as well as remarks by the CEO and other members of management, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may address our expectations regarding sales, earnings or other future financial performance and liquidity, product introductions, entry into new geographic regions, information technology initiatives, new methods of sale, our long-term strategy, restructuring and other charges and resulting cost savings, and future operations or operating results. These statements may contain words like "expect," "will," "will likely result," "would," "believe," "estimate," "planned," "plans," "intends," "may," "should," "could," "anticipate," "estimate," "project," "projected," "forecast," and "forecasted" or similar expressions.
Factors that could cause actual results to differ materially from our 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 timing or 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, 2018. 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 approximately 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-F
ELC-E
CONSOLIDATED STATEMENTS OF EARNINGS | |||||||||||||||||
(Unaudited; $ in millions, except per share dataand percentages) |
Three Months Ended June 30 |
Percent Change |
Year Ended June 30 |
Percent Change |
|||||||||||||
2019 |
2018 |
2019 |
2018 |
||||||||||||||
Net Sales (A) |
$ |
3,590 |
$ |
3,295 |
9 |
% |
$ |
14,863 |
$ |
13,683 |
9 |
% |
|||||
Cost of sales (A) |
835 |
697 |
20 |
% |
3,387 |
2,844 |
19 |
% |
|||||||||
Gross Profit |
2,755 |
2,598 |
6 |
% |
11,476 |
10,839 |
6 |
% |
|||||||||
Gross Margin |
76.7 |
% |
78.8 |
% |
77.2 |
% |
79.2 |
% |
|||||||||
Operating expenses: | |||||||||||||||||
Selling, general and administrative (B) |
2,422 |
2,287 |
6 |
% |
8,857 |
8,553 |
4 |
% |
|||||||||
Restructuring and other charges (A) |
117 |
33 |
>100 |
% |
216 |
231 |
(6 |
)% |
|||||||||
Goodwill impairment (C) |
- |
- |
- |
% |
68 |
- |
100 |
% |
|||||||||
Impairment of other intangible assets (C) |
- |
- |
- |
% |
22 |
- |
100 |
% |
|||||||||
2,539 |
2,320 |
9 |
% |
9,163 |
8,784 |
4 |
% |
||||||||||
Operating Expense Margin |
70.7 |
% |
70.4 |
% |
61.6 |
% |
64.2 |
% |
|||||||||
Operating Income |
216 |
278 |
(22 |
)% |
2,313 |
2,055 |
13 |
% |
|||||||||
Operating Income Margin |
6.0 |
% |
8.4 |
% |
15.6 |
% |
15.0 |
% |
|||||||||
Interest expense |
32 |
32 |
- |
% |
133 |
128 |
4 |
% |
|||||||||
Interest income and investment income, net |
16 |
16 |
- |
% |
58 |
56 |
4 |
% |
|||||||||
Other components of net periodic benefit cost |
1 |
1 |
- |
% |
2 |
3 |
(33 |
)% |
|||||||||
Other income, net (D) |
- |
- |
- |
% |
71 |
- |
100 |
% |
|||||||||
Earnings before Income Taxes |
199 |
261 |
(24 |
)% |
2,307 |
1,980 |
17 |
% |
|||||||||
Provision for income taxes (E) |
41 |
73 |
(44 |
)% |
513 |
863 |
(41 |
)% |
|||||||||
Net Earnings |
158 |
188 |
(16 |
)% |
1,794 |
1,117 |
61 |
% |
|||||||||
Net earnings attributable to noncontrolling | |||||||||||||||||
interests |
(1 |
) |
(2 |
) |
(50 |
)% |
(9 |
) |
(9 |
) | - |
% |
|||||
Net Earnings Attributable to The Estée Lauder | |||||||||||||||||
Companies Inc. |
$ |
157 |
$ |
186 |
(16 |
)% |
$ |
1,785 |
$ |
1,108 |
61 |
% |
|||||
Net earnings attributable to The Estée Lauder | |||||||||||||||||
Companies Inc. per common share: | |||||||||||||||||
Basic |
$ |
.43 |
$ |
.51 |
(14 |
)% |
$ |
4.91 |
$ |
3.01 |
63 |
% |
|||||
Diluted |
.43 |
.49 |
(14 |
)% |
4.82 |
2.95 |
63 |
% |
|||||||||
Weighted average common shares outstanding: | |||||||||||||||||
Basic |
361.8 |
367.2 |
363.5 |
368.0 |
|||||||||||||
Diluted |
369.1 |
375.8 |
370.4 |
375.7 |
|||||||||||||
(A) In May 2016, we announced a multi-year initiative ("Leading Beauty Forward," or the "Program") to build on our strengths and better leverage our cost structure to free resources for investment to continue our growth momentum. Leading Beauty Forward is designed to enhance our go-to-market capabilities, reinforce our leadership in global prestige beauty and continue creating sustainable value. As of June 30, 2019, we concluded the approvals of all major initiatives under Leading Beauty Forward related to the optimization of select corporate functions, supply chain activities, and corporate and regional market support structures, as well as the exit of underperforming businesses, and expect to substantially complete those initiatives through fiscal 2021. We previously estimated that Leading Beauty Forward would result in related restructuring and other charges totaling between $900 million and $950 million, before taxes. After concluding the final approvals and reviewing 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, 2019, we now estimate that Leading Beauty Forward may result in related restructuring and other charges totaling between $950 million and $990 million, before taxes, consisting of employee-related costs, asset write-offs and other costs to implement these initiatives. As many of our previously approved Leading Beauty Forward initiatives are progressing through their implementation stages, we are revising our previous estimate of annual net benefits of between $350 million and $450 million, before taxes. After its full implementation, we now expect Leading Beauty Forward to yield annual net benefits, primarily in Selling, general and administrative expenses and, to a lesser extent, Cost of sales, of between $425 million and $475 million, before taxes. These savings can be used to improve margin, mitigate risk and invest in future growth initiatives.
(B) The Company recorded $19 million and $37 million of income within Selling, general and administrative expenses for the three and twelve months ended June 30, 2019, 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, 2018, the Company recorded income of $37 million and $43 million, respectively.
(C) The Company recorded $90 million of goodwill and other intangible asset impairments with an impact of $.23 per common share for the twelve months ended June 30, 2019 related to its Smashbox reporting unit. During 2019, Smashbox made revisions to its internal forecasts reflecting the slowdown of its makeup business driven by ongoing competitive activity and lower than expected growth in key retail channels for the brand.
(D) The Tax Cuts and Jobs Act (the "TCJA"), which was enacted on December 22, 2017, presented us with opportunities to manage cash and investments more efficiently on a global basis. Accordingly, during the third quarter of fiscal 2019, as part of the assessment of those opportunities, we sold our available-for-sale securities, which liquidated our investment in the foreign subsidiary that owned those securities. As a result, we recorded a realized net gain on liquidation of our investment in a foreign subsidiary of $71 million ($57 million after tax), for a net impact of $.15 per common share.
(E) During the twelve months ended June 30, 2019, the Company recorded a net charge of $5 million equal to $.01 per common share to reflect the finalization of the TCJA provisional charges recorded in fiscal 2018. For the twelve months ended June 30, 2018, the Company recorded provisional charges resulting from the enactment of the TCJA totaling $427 million, equal to $1.14 per common share.
Reconciliation between GAAP and Non-GAAP | ||||||||||||||
Three Months Ended June 30, 2019 |
Three Months Ended June 30 |
|||||||||||||
Net Sales Growth |
Diluted EPS Growth |
Diluted Earnings Per Share |
||||||||||||
(Unaudited) |
Reported Basis(1) |
Constant Currency |
Reported Basis(1) |
Constant Currency |
2019 |
2018 |
||||||||
As Reported Results |
9 |
% |
11 |
% |
(14 |
)% |
(11 |
)% |
$ |
.43 |
|
$ |
.49 |
|
Restructuring and other charges |
.25 |
|
.10 |
|
||||||||||
Contingent consideration |
(.04 |
) |
(.08 |
) |
||||||||||
Transition Tax resulting from the TCJA |
- |
|
.05 |
|
||||||||||
Remeasurement of U.S. net deferred tax assets as of the | ||||||||||||||
TCJA enactment date |
- |
|
(.03 |
) |
||||||||||
Net deferred tax liability related to foreign withholding | ||||||||||||||
taxes on certain foreign earnings resulting from the TCJA |
- |
|
.07 |
|
||||||||||
Non-GAAP |
11 |
% |
8 |
% |
$ |
.64 |
|
$ |
.61 |
|
||||
Impact of adoption of ASC 606 |
1 |
% |
.04 |
|
||||||||||
Non-GAAP, excluding impact of adoption of ASC 606 |
12 |
% |
.68 |
|
||||||||||
Impact of foreign currency on earnings per share |
.02 |
|
||||||||||||
Non-GAAP, constant currency earnings per share, | ||||||||||||||
excluding the impact of adoption of ASC 606 |
15 |
% |
$ |
.70 |
|
|||||||||
(1) Represents GAAP | ||||||||||||||
Amounts may not sum due to rounding. |
Returns and Charges Associated With Restructuring and Other Activities and Other Adjustments | ||||||||||||||||||
(Unaudited; $ in millions, except per share data) |
Operating Expenses |
|||||||||||||||||
Sales Returns |
Cost of Sales |
Restructuring Charges |
Other Charges/ Adjustments |
Total |
After Tax |
Diluted Earnings Per Share |
||||||||||||
Three Months Ended June 30, 2019 |
||||||||||||||||||
Leading Beauty Forward |
$ |
1 |
$ |
6 |
$ |
102 |
$ |
15 |
|
$ |
124 |
|
$ |
95 |
|
$ |
.25 |
|
Contingent consideration |
(19 |
) |
(19 |
) |
(16 |
) |
(.04 |
) |
||||||||||
Total |
$ |
1 |
$ |
6 |
$ |
102 |
$ |
(4 |
) |
$ |
105 |
|
$ |
79 |
|
$ |
.21 |
|
Year Ended June 30, 2019 |
||||||||||||||||||
Leading Beauty Forward |
$ |
3 |
$ |
22 |
$ |
133 |
$ |
83 |
|
$ |
241 |
|
$ |
190 |
|
$ |
.51 |
|
Contingent consideration |
(37 |
) |
(37 |
) |
(31 |
) |
(.08 |
) |
||||||||||
Gain on liquidation of an investment in a | ||||||||||||||||||
foreign subsidiary, net |
(71 |
) |
(71 |
) |
(57 |
) |
(.15 |
) |
||||||||||
Goodwill and other intangible asset | ||||||||||||||||||
impairments |
90 |
|
90 |
|
85 |
|
.23 |
|
||||||||||
Transition Tax resulting from the TCJA |
(12 |
) |
(.03 |
) |
||||||||||||||
Remeasurement of U.S. net deferred tax | ||||||||||||||||||
assets as of the TCJA enactment date |
8 |
|
.02 |
|
||||||||||||||
Net deferred tax liability related to foreign | ||||||||||||||||||
withholding taxes on certain foreign | ||||||||||||||||||
earnings resulting from the TCJA |
9 |
|
.02 |
|
||||||||||||||
Total |
$ |
3 |
$ |
22 |
$ |
133 |
$ |
65 |
|
$ |
223 |
|
$ |
192 |
|
$ |
.52 |
|
(Unaudited; $ in millions, except per share data) |
Operating Expenses |
|||||||||||||||||
Sales Returns |
Cost of Sales |
Restructuring Charges |
Other Charges/ Adjustments |
Total |
After Tax |
Diluted Earnings Per Share |
||||||||||||
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 tax | ||||||||||||||||||
assets as of the TCJA enactment date |
(12 |
) |
(.03 |
) |
||||||||||||||
Net deferred tax liability related to foreign | ||||||||||||||||||
withholding taxes on certain foreign earnings 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 tax | ||||||||||||||||||
assets as of the TCJA enactment date |
30 |
|
.08 |
|
||||||||||||||
Net deferred tax liability related to foreign | ||||||||||||||||||
withholding taxes on certain foreign earnings resulting from the TCJA |
46 |
|
.12 |
|
||||||||||||||
Total |
$ |
8 |
$ |
18 |
$ |
127 |
$ |
61 |
|
$ |
214 |
|
$ |
587 |
|
$ |
1.56 |
|
Results by Product Category |
||||||||||||||||||||
Three Months Ended June 30 |
||||||||||||||||||||
Net Sales |
Percent Change |
Operating Income (Loss) |
Percent Change |
|||||||||||||||||
(Unaudited; $ in millions) |
2019 |
2018 |
Reported Basis |
Constant Currency |
Constant Currency, excl ASC 606 |
2019 |
2018 |
Reported Basis |
||||||||||||
Skin Care |
$ |
1,589 |
|
$ |
1,379 |
|
15 |
% |
18 |
% |
19 |
% |
$ |
301 |
|
$ |
293 |
|
3 |
% |
Makeup |
1,433 |
|
1,358 |
|
6 |
|
8 |
|
8 |
|
40 |
|
35 |
|
14 |
|
||||
Fragrance |
401 |
|
403 |
|
- |
|
2 |
|
3 |
|
(16 |
) |
(19 |
) |
16 |
|
||||
Hair Care |
151 |
|
151 |
|
- |
|
1 |
|
1 |
|
12 |
|
19 |
|
(37 |
) |
||||
Other |
17 |
|
12 |
|
42 |
|
42 |
|
42 |
|
3 |
|
- |
|
- |
|
||||
Subtotal |
3,591 |
|
3,303 |
|
9 |
|
11 |
|
12 |
|
340 |
|
328 |
|
4 |
|
||||
Returns/charges associated with | ||||||||||||||||||||
restructuring and other activities |
(1 |
) |
(8 |
) |
(124 |
) |
(50 |
) |
||||||||||||
Total |
$ |
3,590 |
|
$ |
3,295 |
|
9 |
% |
11 |
% |
12 |
% |
$ |
216 |
|
$ |
278 |
|
(22 |
)% |
Results by Geographic Region |
||||||||||||||||||||||
Three Months Ended June 30 |
||||||||||||||||||||||
Net Sales |
Percent Change |
Operating Income (Loss) |
Percent Change |
|||||||||||||||||||
(Unaudited; $ in millions) |
2019 |
2018 |
Reported Basis |
Constant Currency |
Constant Currency, excl ASC 606 |
2019 |
2018 |
Reported Basis |
||||||||||||||
The Americas |
$ |
1,132 |
|
$ |
|
1,197 |
|
(5 |
)% |
(5 |
)% |
(4 |
)% |
$ |
(137 |
) |
$ |
(20 |
) |
>(100 |
)% |
|
Europe, the Middle East & Africa |
1,627 |
|
1,398 |
|
16 |
|
19 |
|
20 |
|
439 |
|
330 |
|
33 |
|
||||||
Asia/Pacific |
832 |
|
708 |
|
18 |
|
23 |
|
23 |
|
38 |
|
18 |
|
>100 |
|||||||
Subtotal |
3,591 |
|
3,303 |
|
9 |
|
11 |
|
12 |
|
340 |
|
328 |
|
4 |
|
||||||
Returns/charges associated with | ||||||||||||||||||||||
restructuring and other activities |
(1 |
) |
(8 |
) |
(124 |
) |
(50 |
) |
||||||||||||||
Total |
$ |
3,590 |
|
$ |
|
3,295 |
|
9 |
% |
11 |
% |
12 |
% |
$ |
216 |
|
$ |
278 |
|
(22 |
)% |
|
Net sales and operating income in the Company's product categories and regions for the three months ended June 30, 2019 were unfavorably impacted by a stronger U.S. dollar in relation to most currencies and by the adoption of ASC 606. Total reported operating income was $216 million, a 22% decrease from $278 million in the prior year quarter. Operating income increased 20% excluding (1) the adoption of ASC 606 that decreased operating income by $20 million, (2) restructuring and other charges and adjustments of $105 million compared to $13 million in the prior-year period, and (3) the unfavorable impact of currency translation of $8 million.
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 net gain on liquidation of our investment in a foreign subsidiary, the changes in the fair value of contingent consideration and charges associated with the TCJA. 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 do not 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. Beginning in fiscal 2019, the Company adopted a new accounting standard related to hedging that resulted in gains/losses on its foreign currency cash flow hedging activities to now be reflected in Net Sales, where in prior periods they were reflected in Cost of sales and Selling, general and administrative expenses. To better assess its performance in a constant currency environment, beginning in fiscal 2019 the Company is excluding the impact of these hedging activities in its constant currency calculations.
Reconciliation of Certain Consolidated Statements of Earnings Accounts Before and After Returns, Charges and Other Adjustments |
||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2019 |
Three Months Ended June 30, 2018 |
|||||||||||||||||||||||||||||||||
(Unaudited; $ in millions, except per share data and percentages) |
As Reported |
Returns/ Charges/ Adjust- ments |
Non-GAAP |
Impact of adoption of ASC 606 |
Non-GAAP, excluding impact of adoption of ASC 606 |
Impact of foreign currency translation |
Non-GAAP, Constant Currency- Adjusted |
As Reported |
Returns/ Charges/ Adjust- ments |
Non-GAAP |
% Change Non-GAAP |
% Change Non-GAAP, Constant Currency- Adjusted |
||||||||||||||||||||||
Net Sales |
$ |
3,590 |
$ |
1 |
|
$ |
3,591 |
$ |
21 |
|
$ |
3,612 |
$ |
83 |
|
$ |
3,695 |
$ |
3,295 |
$ |
8 |
|
$ |
3,303 |
9 |
% |
12 |
% |
||||||
Cost of sales |
835 |
(6 |
) |
829 |
(81 |
) |
748 |
20 |
|
768 |
697 |
(9 |
) |
688 |
||||||||||||||||||||
Gross Profit |
2,755 |
7 |
|
2,762 |
102 |
|
2,864 |
63 |
|
2,927 |
2,598 |
17 |
|
2,615 |
6 |
% |
12 |
% |
||||||||||||||||
Gross Margin |
76.7 |
% |
76.9 |
% |
79.3 |
% |
79.2 |
% |
78.8 |
% |
79.2 |
% |
||||||||||||||||||||||
Operating expenses |
2,539 |
(98 |
) |
2,441 |
82 |
|
2,523 |
55 |
|
2,578 |
2,320 |
4 |
|
2,324 |
5 |
% |
11 |
% |
||||||||||||||||
Operating Expense Margin |
70.7 |
% |
68.0 |
% |
69.9 |
% |
69.8 |
% |
70.4 |
% |
70.4 |
% |
||||||||||||||||||||||
Operating Income |
216 |
105 |
|
321 |
20 |
|
341 |
8 |
|
349 |
278 |
13 |
|
291 |
10 |
% |
20 |
% |
||||||||||||||||
Operating Income Margin |
6.0 |
% |
8.9 |
% |
9.4 |
% |
9.4 |
% |
8.4 |
% |
8.8 |
% |
||||||||||||||||||||||
Provision for income taxes |
41 |
27 |
|
68 |
4 |
|
72 |
(1 |
) |
71 |
73 |
(30 |
) |
43 |
58 |
% |
65 |
% |
||||||||||||||||
Net Earnings Attributable to The Estée Lauder Companies Inc. |
$ |
157 |
$ |
78 |
$ |
235 |
$ |
16 |
$ |
251 |
$ |
8 |
$ |
259 |
$ |
186 |
$ |
43 |
$ |
229 |
3 |
% |
13 |
% |
||||||||||
Diluted net earnings attributable to The Estée Lauder Companies Inc. per common share |
$ |
.43 |
$ |
.21 |
$ |
.64 |
$ |
.04 |
$ |
.68 |
$ |
.02 |
$ |
.70 |
$ |
.49 |
$ |
.12 |
$ |
.61 |
5 |
% |
15 |
% |
Reconciliation of Certain Consolidated Statements of Earnings Accounts Before and After Returns, Charges and Other Adjustments |
|||||||||||||||||||||||||||||||||
Year Ended June 30, 2019 |
Year Ended June 30, 2018 |
||||||||||||||||||||||||||||||||
(Unaudited; $ in millions, except per share data and percentages) |
As Reported |
Returns/ Charges/ Adjust- ments |
Non-GAAP |
Impact of adoption of ASC 606 |
Non-GAAP, excluding impact of adoption of ASC 606 |
Impact of foreign currency translation |
Non-GAAP, Constant Currency- Adjusted |
As Reported |
Returns/ Charges/ Adjust- ments |
Non-GAAP |
% Change Non-GAAP |
% Change Non-GAAP, Constant Currency- Adjusted |
|||||||||||||||||||||
Net Sales |
$ |
14,863 |
$ |
3 |
|
$ |
14,866 |
$ |
49 |
|
$ |
14,915 |
$ |
371 |
$ |
15,286 |
$ |
13,683 |
$ |
8 |
|
$ |
13,691 |
9 |
% |
12 |
% |
||||||
Cost of sales |
3,387 |
(22 |
) |
3,365 |
(300 |
) |
3,065 |
87 |
3,152 |
2,844 |
(18 |
) |
2,826 |
||||||||||||||||||||
Gross Profit |
11,476 |
25 |
|
11,501 |
349 |
|
11,850 |
284 |
12,134 |
10,839 |
26 |
|
10,865 |
6 |
% |
12 |
% |
||||||||||||||||
Gross Margin |
77.2 |
% |
77.4 |
% |
79.5 |
% |
79.4 |
% |
79.2 |
% |
79.4 |
% |
|||||||||||||||||||||
Operating expenses |
9,163 |
(269 |
) |
8,894 |
370 |
|
9,264 |
195 |
9,459 |
8,784 |
(188 |
) |
8,596 |
3 |
% |
10 |
% |
||||||||||||||||
Operating Expense Margin |
61.6 |
% |
59.8 |
% |
62.1 |
% |
61.9 |
% |
64.2 |
% |
62.8 |
% |
|||||||||||||||||||||
Operating Income |
2,313 |
294 |
|
2,607 |
(21 |
) |
2,586 |
89 |
2,675 |
2,055 |
214 |
|
2,269 |
15 |
% |
18 |
% |
||||||||||||||||
Operating Income Margin |
15.6 |
% |
17.5 |
% |
17.3 |
% |
17.5 |
% |
15.0 |
% |
16.6 |
% |
|||||||||||||||||||||
Other income, net |
71 |
(71 |
) |
- |
- |
|
- |
- |
- |
- |
- |
|
- |
- |
|
- |
|
||||||||||||||||
Provision for income taxes |
513 |
31 |
|
544 |
(5 |
) |
539 |
20 |
559 |
863 |
(373 |
) |
490 |
11 |
% |
14 |
% |
||||||||||||||||
Net Earnings Attributable to The Estée Lauder Companies Inc. |
$ |
1,785 |
$ |
192 |
|
$ |
1,977 |
$ |
(16 |
) |
$ |
1,961 |
$ |
69 |
$ |
2,030 |
$ |
1,108 |
$ |
587 |
|
$ |
1,695 |
17 |
% |
20 |
% |
||||||
Diluted net earnings attributable to The Estée Lauder Companies Inc. per common share |
$ |
4.82 |
$ |
.52 |
|
$ |
5.34 |
$ |
(.04 |
) |
$ |
5.29 |
$ |
.19 |
$ |
5.48 |
$ |
2.95 |
$ |
1.56 |
|
$ |
4.51 |
18 |
% |
21 |
% |
||||||
Amounts may not sum due to rounding. |
|||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
||||
(Unaudited; $ in millions) |
June 30 2019 |
June 30 2018 |
||
ASSETS |
||||
Current Assets | ||||
Cash and cash equivalents |
$ |
2,987 |
$ |
2,181 |
Short-term investments |
- |
534 |
||
Accounts receivable, net |
1,831 |
1,487 |
||
Inventory and promotional merchandise, net |
2,006 |
1,618 |
||
Prepaid expenses and other current assets |
388 |
348 |
||
Total Current Assets |
7,212 |
6,168 |
||
Property, Plant and Equipment, net |
2,068 |
1,823 |
||
Other Assets |
3,876 |
4,576 |
||
Total Assets |
$ |
13,156 |
$ |
12,567 |
LIABILITIES AND EQUITY | ||||
Current Liabilities | ||||
Current debt |
$ |
516 |
$ |
183 |
Accounts payable |
1,490 |
1,182 |
||
Other accrued liabilities |
2,599 |
1,945 |
||
Total Current Liabilities |
4,605 |
3,310 |
||
Noncurrent Liabilities | ||||
Long-term debt |
2,896 |
3,361 |
||
Other noncurrent liabilities |
1,244 |
1,186 |
||
Total Noncurrent Liabilities |
4,140 |
4,547 |
||
Total Equity |
4,411 |
4,710 |
||
Total Liabilities and Equity |
$ |
13,156 |
$ |
12,567 |
The following table details the impacts of ASC 606 on the Company's Consolidated Balance Sheet as of June 30, 2019.
CONSOLIDATED BALANCE SHEET IMPACT FROM ASC 606 |
|||||||
(Unaudited; $ in millions) |
As Reported |
Adjustments |
Prior to the Adoption of ASC 606 |
||||
Accounts receivable, net |
$ |
1,831 |
$ |
(202 |
) |
$ |
1,629 |
Inventory and promotional merchandise, net |
2,006 |
(21 |
) |
1,985 |
|||
Other Assets |
628 |
(65 |
) |
563 |
|||
Total Assets |
$ |
13,156 |
$ |
(288 |
) |
$ |
12,868 |
Other accrued liabilities |
2,599 |
(452 |
) |
2,147 |
|||
Other noncurrent liabilities |
1,244 |
(47 |
) |
1,197 |
|||
Total Liabilities |
$ |
8,745 |
$ |
(499 |
) |
$ |
8,246 |
Total Equity |
$ |
4,411 |
$ |
211 |
|
$ |
4,622 |
SELECT CASH FLOW DATA |
||||||
Year Ended |
||||||
June 30 |
||||||
(Unaudited; $ in millions) |
2019 |
2018 |
||||
Cash Flows from Operating Activities | ||||||
Net earnings |
$ |
1,794 |
|
$ |
1,117 |
|
Depreciation and amortization |
557 |
|
531 |
|
||
Deferred income taxes |
(66 |
) |
175 |
|
||
Other items |
234 |
|
175 |
|
||
Changes in operating assets and liabilities: | ||||||
Increase in accounts receivable, net |
(169 |
) |
(105 |
) |
||
Increase in inventory and promotional merchandise, net |
(375 |
) |
(147 |
) |
||
Increase in other assets, net |
(62 |
) |
1 |
|
||
Increase in accounts payable and other liabilities |
604 |
|
815 |
|
||
Net cash flows provided by (used for) operating activities |
$ |
2,517 |
|
$ |
2,562 |
|
Other Investing and Financing Sources/(Uses): | ||||||
Capital expenditures |
$ |
(744 |
) |
$ |
(629 |
) |
Proceeds of investments, net |
1,215 |
|
271 |
|
||
Payments to acquire treasury stock |
(1,555 |
) |
(759 |
) |
||
Dividends paid |
(609 |
) |
(546 |
) |
||
Repayments of current debt, net |
(171 |
) |
(8 |
) |
# # #
View source version on businesswire.com: https://www.businesswire.com/news/home/20190819005176/en/