01—Abstract
Summary
Summary of the 10-K filed August 20, 2010. Cited figures are marked; the original filing is the authoritative source.
The Estée Lauder Companies Inc. reported net sales of $7,795.8 milliona for fiscal 2010 (year ended June 30, 2010), up from $7,323.8 million in fiscal 2009, with net sales increasing 6% and excluding currency translation increasing 5%.
Operating income rose to $789.9 millionb from $418.4 million, and net earnings attributable to the company were $478.3 million, or $2.38 per diluted share, compared with $218.4 million, or $1.10 per diluted share, in the prior year. Results include total restructuring charges of $84.7 million in operating income and a $27.3 million pre-tax charge on debt extinguishment, and management describes fiscal 2010 as the first year of a long-term strategy running through fiscal 2013. Skin care was the largest category at $3,227.1 million in net sales, up 12%, and makeup reached $2,978.2 million, up 5%, while fragrance declined 1% to $1,136.9 million.
By region, Europe, the Middle East & Africa grew to $2,859.3 million and Asia/Pacific to $1,510.1 millionc, while the Americas was $3,442.1 million. Cash flow from operations was $956.7 million, cash and equivalents ended at $1,120.7 million, and total debt was $1,228.4 million. The Lauder family controls approximately 87.1% of voting power, and the company reported that the Smashbox acquisition closed on July 1, 2010 for approximately $250 million.
02—Key points
Key Highlights
- Net sales rose 6% to $7,795.8 million, with skin care up 12% and makeup up 5%, while fragrance declined 1%.
- Operating income increased to $789.9 million (10.1% of net sales) from $418.4 million, after restructuring charges of $84.7 million.
- Diluted EPS attributable to the company was $2.38, up from $1.10 in fiscal 2009.
- Operating cash flow was $956.7 million, up from $696.0 million, and cash and equivalents reached $1,120.7 million.
- Total debt declined to $1,228.4 million from $1,421.4 million, after a May 2010 tender offer that retired $199.9 million of senior notes.
- Europe, the Middle East & Africa operating income more than doubled to $500.8 million, and Asia/Pacific operating income rose 29% to $212.3 million.
- The Lauder family holds approximately 87.1% of voting power, and the company is a 'controlled company' under NYSE rules.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Estée Lauder Companies kept $0.06.
- Revenue$7.80B100.0%
- Cost of revenue−$1.83B23.5%
- Gross profit$5.97B76.5%
- Operating costs−$5.18B66.4%
- Operating income$789.9M10.1%
- Interest, other & tax−$311.6M4.0%
- Net income$478.3M6.1%
Where FY2010 revenue went
$7.80B- SG&A: $5.07B, 65% of revenue
- Cost of revenue: $1.83B, 23% of revenue
- Net income: $478.3M, 6.1% of revenue
- R&D: $79.5M, 1.0% of revenue
- Interest, other & tax: $311.6M, 4.0% of revenue
Kept 6.1% as net incomeNet income $478.3M · 6.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed August 20, 2010Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $7.80B$7.32B | +6.4% |
| Cost of Revenue | $1.83B$1.88B | −2.8% |
| Gross Profit | $5.97B$5.44B | +9.6% |
| R&D Expenses | $79.50M$81.60M | −2.6% |
| SG&A Expenses | $5.07B$4.88B | +3.7% |
| Operating Expenses | $5.18B$5.02B | +3.0% |
| Operating Income | $789.90M$418.40M | +88.8% |
| Net Income | $478.30M$218.40M | +119.0% |
| EPS (Basic) | $1.21$1.11 | +9.0% |
| EPS (Diluted) | $1.19$1.10 | +8.2% |
| Shares Outstanding (Basic) | 395.40M196.30M | +101.4% |
| Shares Outstanding (Diluted) | 401.50M197.70M | +103.1% |
05—Questions
Frequently Asked Questions
What drove the improvement in fiscal 2010 profitability?
Operating income rose to $789.9 million from $418.4 million. The filing attributes this to cost savings from the multi-faceted cost savings program, favorable product mix toward skin care, a lower cost of sales ratio of 23.5% versus 25.7%, and a lower operating expense ratio of 66.4% versus 68.6%.
How much restructuring cost is associated with the company's cost savings program?
The program is expected to produce total restructuring and other special charges between $350 million and $450 million before taxes. Total charges associated with restructuring activities included in operating income were $84.7 million in fiscal 2010 and $91.7 million in fiscal 2009. The program targets a workforce reduction of approximately 2,000 employees.
What was the effect of the debt tender offer?
In May 2010 the company repurchased $130.0 million of its 2012 Senior Notes and $69.9 million of its 2013 Senior Notes through a cash tender offer. It recorded a pre-tax expense of $27.3 million on the extinguishment of debt, which reduced net earnings by $17.5 million, or $0.09 per diluted share.
What risks do shareholders face from the Lauder family's control?
The Lauder family beneficially owns shares with approximately 87.1% of the voting power, allowing it to control stockholder votes, including director elections and significant transactions such as a merger or asset sale. The company relies on controlled company exemptions from certain NYSE governance requirements, so investors do not receive the same protections as at companies subject to all NYSE standards.
What is the outlook for the company's strategy and key markets?
Management said it is implementing a long-term strategy through fiscal 2013 that emphasizes skin care, growth in Asia and emerging markets such as China, and restoring profitable growth in North American department stores. It noted that North American retail remains challenging and that it does not expect the same year-over-year operating improvements to continue.
06—Continue