Estee Lauder Not Looking so Pretty

is not having a good to the week. The company reported second-quarter EPS of $1.01 vs. the same estimate and revenues of $2.74 villion vs. the $2.75 billion estimate. On the surface, those numbers wouldn't seemto be too bad and, as previously reported by Benzinga, EL CEO Fabrizio Freda said, “The Company's strong second quarter results complete an outstanding first half performance. Our sales and profits this holiday season came in higher than planned and demonstrate the vibrancy of our brand portfolio in solid as well as soft economies. Our results were again broad based across brands, regions, categories and channels. The key drivers of our 10% sales growth were the U.S., China, travel retail and online. Importantly, we continued our consistent gross margin and operating margin improvements." That is called “putting a smile on a suicidal face”, because EL's outlook for the year has seen shares take a plunge on Friday. According to

, EL is expecting decreased foreign consumer demand and unfavorable currency rates. With that in mind, the company says that its EPS for the fiscal year should be $2.09 to $2.19. Analysts were expecting a minimum of $2.20. Estee might be expecting weakened demand across Europe and Asia, those markets grew in 2Q, particularly in Asia andf the Pacific, with net sales rising 21 percent to 620 million. Net sales in Europe increased 5 percent to approximately $1 billion. In its report on Friday, Citi said that it is maintaining its Buy rating on EL, saying that, “Bears will argue that today is different – that the outlook is decidedly more cautious, and that if EL's guidance in fact is ultimately accurate, that 3Q12 in particular, but 2H12 as a whole, will show a marked slowdown on EL's top line growth (from 12% local currency sales in 1H12 to only ~5% in 2H12). To the extent this growth rate carries into FY13, then perhaps EL's EPS growth slows for some time to come. However, we remain optimistic about the strong growth outlook for the prestige category over the long term, and we remain confident that EL will continue to outgrow the category given its distribution expansion opportunities and its history of excellence in marketing and innovation. As such, we maintain our Buy rating and our $67.50 price target.” J.P. Morgan said that, “Estée's FQ2 adjusted EPS came in at $1.01 (including a ~$0.02 benefit from other income and a ~$0.01 hit from impairment of intangible assets), vs. our estimate of $1.02, Bloomberg consensus of $1.01 and their forecast (adj. for the split) of $0.93- 1.00. OI missed our estimate by ~1% on slightly lower than expected sales and higher SG&A/sales ratio. Cost savings of $36 MM were slightly above the high end of their guidance range. Topline appears to be decelerating (although there is some noise from SAP), particularly in Europe. Q3 guidance is weak, but offset by higher Q4 guidance.” Deutsche Bank maintained its Hold rating and said, “Estee's management team has been exceeding high Street expectations over the last few years by focusing on profitable growth with categories recovering and the company benefiting from the barbell consumption curve. The strong top-line trends have provided the company with significant operating leverage; however, we believe the company may now have reached a point where it is finding it difficult to exceed high expectations in the face of modestly slowing global growth.” Finally, Wedbush maintained its Outperform rating and said, “Given powerful global brand equity, leading market positions in the prestige beauty category, and rising market shares across key business segments, we believe shares of EL should trade relatively in line to other large-cap comparables, such as Colgate-Palmolive and Procter & Gamble. Thus, using a 2.7 EV/ calendar 2012E sales multiple, we arrive at our PT of $68. We would view today's sell-off, likely a near-term response to weak Q3 EPS guidance, as a buying opportunity for shares of EL.” Not all bad news then. Still, the market does not make for pretty viewing on Friday afternoon, with EL trading at $56.85 at the time of writing, down $2 or 3.4 percent.