01—Abstract
Summary
Summary of the 10-K filed August 20, 2015. Cited figures are marked; the original filing is the authoritative source.
The Estée Lauder Companies Inc. reported fiscal 2015 (year ended June 30, 2015) net sales of $10.78 billiona, down 2% from $10.97 billion in fiscal 2014, as reported.
The decline was driven entirely by a $519 millionb negative impact from foreign currency translation and an approximately $357 million unfavorable comparison to accelerated orders recorded in the fiscal 2014 fourth quarter ahead of the July 2014 SMI rollout. Excluding those items, net sales would have increased 6%. Operating income fell 12% to $1.61 billion, and diluted EPS declined to $2.82 from $3.06.
Adjusted for the accelerated orders and Venezuela remeasurement charges, diluted EPS was $3.05c versus $2.95 in fiscal 2014, with adjusted operating income flat at $1.74 billion. By product category, skin care net sales fell 6% to $4.48 billion, while makeup rose 2% to $4.30 billion, fragrance declined 1% to $1.42 billion, and hair care rose 3% to $530.6 million. Makeup, along with the company's makeup artist and luxury brands, was cited as a key growth driver, while Estée Lauder and Clinique sales were challenged.
Cash flow from operations increased to $1.94 billiond from $1.54 billion, and the company returned capital through $927.7 million of share repurchases and $0.92 per share in dividends declared. Total debt rose to $1.64 billion after issuing $300 million of 4.375% Senior Notes due 2045, and the company used cash to acquire four brands for $237.2 million at closing, with additional contingent payments expected from fiscal 2018 through 2020.
The Lauder family controls approximately 87% of the voting power, and the company is a controlled company under NYSE rules. Investors should weigh the strong cash generation and continued brand investment against the reported sales decline, currency headwinds, and concentrated governance structure.
02—Key points
Key Highlights
- Net sales of $10,780.4 million, down 2% as reported and up 6% excluding currency translation and accelerated orders.
- Operating income of $1,606.3 million, down 12%, with operating margin at 14.9% versus 16.7% in fiscal 2014.
- Diluted EPS of $2.82 versus $3.06; adjusted diluted EPS of $3.05 versus $2.95.
- Net cash from operating activities of $1,943.3 million, up from $1,535.2 million.
- Share repurchases of $927.7 million for approximately 11.7 million shares; dividends declared of $.92 per share.
- Issued $300.0 million of 4.375% Senior Notes due 2045; total debt of $1,637.3 million at June 30, 2015.
- Lauder family holds approximately 87% 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 FY2015, Estée Lauder Companies kept $0.10.
- Revenue$10.78B100.0%
- Cost of revenue−$2.10B19.5%
- Gross profit$8.68B80.5%
- Operating costs−$7.07B65.6%
- Operating income$1.61B14.9%
- Interest, other & tax−$517.0M4.8%
- Net income$1.09B10.1%
Where FY2015 revenue went
$10.78B- SG&A: $7.07B, 66% of revenue
- Cost of revenue: $2.10B, 19% of revenue
- Net income: $1.09B, 10% of revenue
- Interest, other & tax: $517.0M, 4.8% of revenue
Kept 10% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed August 20, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $10.78B$10.97B | −1.7% |
| Cost of Revenue | $2.10B$2.16B | −2.7% |
| Gross Profit | $8.68B$8.81B | −1.5% |
| SG&A Expenses | $7.07B$6.99B | +1.3% |
| Operating Expenses | $7.07B$6.98B | +1.3% |
| Operating Income | $1.61B$1.83B | −12.1% |
| Interest Expense | $60.00M$59.40M | +1.0% |
| Net Income | $1.09B$1.20B | −9.6% |
| EPS (Basic) | $2.87$3.12 | −8.0% |
| EPS (Diluted) | $2.82$3.06 | −7.8% |
| Shares Outstanding (Basic) | 379.30M386.20M | −1.8% |
| Shares Outstanding (Diluted) | 385.70M393.10M | −1.9% |
05—Questions
Frequently Asked Questions
How did sales perform excluding currency and the accelerated orders?
Reported net sales declined 2%, or $188.4 million, to $10,780.4 million. The filing states that foreign currency translation reduced net sales by approximately $519 million and the accelerated orders created a difficult comparison of approximately $357 million. Excluding both items, net sales would have increased 6%.
Why did operating income decline?
Operating income fell 12%, or $221.3 million, to $1,606.3 million. The filing attributes the decline to the negative impact of accelerated orders of approximately $254 million and foreign currency translation of approximately $131 million, along with an increase in operating expense as a percentage of net sales to 65.6% from 63.6%.
Which product categories drove results?
Makeup net sales rose 2% to $4,304.6 million, supported by makeup artist brands and Tom Ford and Smashbox. Skin care declined 6% to $4,478.7 million, reflecting lower Estée Lauder and Clinique sales, while fragrance declined 1% and hair care increased 3%.
How is the company funding its acquisitions and shareholder returns?
Cash on hand and commercial paper funded $237.2 million paid at closing for the fiscal 2015 acquisitions of RODIN olio lusso, Le Labo, Editions de Parfums Frédéric Malle and GLAMGLOW. The company repurchased $927.7 million of stock and paid cash dividends, while cash and cash equivalents fell to $1,021.4 million from $1,629.1 million, partly due to purchases of investments of $1,207.2 million.
What governance considerations should investors note?
The Lauder family beneficially owns shares with approximately 87% of the outstanding voting power, and the company relies on NYSE controlled company exemptions, so it is not required to have fully independent nominating and compensation committees, although the board has a majority of independent directors.
06—Continue