Will Fx Headwind Affect Estee Lauder's (EL) Q1 Earnings? - Analyst Blog

Estee Lauder Companies Inc. (EL) is set to report the first-quarter fiscal 2015 results on Nov 4, before the opening bell. Last quarter, it posted a 20.0% negative surprise. Let's see how things are shaping up for this announcement.

Factors to Consider

We believe Estee Lauder will have to struggle to surpass estimates in the to-be-reported quarter. We are primarily concerned about the foreign exchange volatility around the world. The rising dollar against other currencies like rupee, yen and euro has resulted in declining export volume for Estee Lauder for the past few quarters as international business contributes more than 80% to its revenues.

Meanwhile, the macroeconomic pressures and weak consumer spending environment in Europe have been hurting sales of Estee Lauder's prestige beauty brands. This can affect the company's volumes and sales in the coming quarter as well.

Moreover, the travel retail business is expected to be under pressure due to reduced inter state travel following the ongoing concern about Ebola worldwide.

Many cosmetics company have suffered due to the foreign currency headwinds. Avon Products Inc. (AVP) started off the second half on a strong note wherein third-quarter revenues not only beat the Zacks Consensus Estimate but also marked a year-over-year improvement.

However, gross margin of this Zacks Rank #5 (Strong Sell) company contracted 110 basis points (bps) year over year to 62%, on account of negative currency translation effects primarily in Latin America and Europe, Middle East & Africa as well as higher supply chain expenses.

Earnings Whispers?

Our proven model does not conclusively show that Estee Lauder is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:

Zacks ESP: ESP for Estee Lauder is 0.00% since both the Most Accurate estimate and the Zacks Consensus Estimate stand at 55 cents per share.

Zacks Rank:Estee Lauder carries a Zacks Rank #4 (Sell).

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some consumer staples companies worth considering as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Dean Foods Company (DF), with an Earnings ESP of +15.38% and a Zacks Rank #3 (Hold).

Michael Kors Holdings Ltd (KORS), with an Earnings ESP of +1.14% and a Zacks Rank #3.