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Estée Lauder Companies Annual Report, Year Ended Jun 30, 2016

Filing Date
Filed August 24, 2016
Period End
June 30, 2016
Security
EL
One revenue dollarkept$0.10
In the record · 2016–202610-K1110-Q338-K126

EL filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 126 current reports (8-K) between 2016 and 2026.

  1. Restructuring8-K · Mar ’18Mar ’18
  2. Restructuring8-K · Aug ’20Aug ’20
  3. Leadership change8-K · Jul ’22Jul ’22
  4. Leadership change8-K · Jul ’26Jul ’26

01—Abstract

Summary

Summary of the 10-K filed August 24, 2016. Cited figures are marked; the original filing is the authoritative source.

The Estée Lauder Companies Inc. reported fiscal 2016 (year ended June 30, 2016) net sales of $11.26 billiona, up from $10.78 billion in fiscal 2015, and net earnings attributable to the company of $1.11 billion, up from $1.09 billion.

Diluted EPS was $2.96b versus $2.82. Operating income was essentially flat at $1.61 billion, which the filing attributes to $134.7 million of restructuring charges offsetting a favorable comparison from fiscal 2015 accelerated orders of about $127 million and unfavorable foreign currency translation of about $134 million. Makeup was the strongest category, with net sales rising to $4.70 billion from $4.30 billion, while skin care declined slightly to $4.45 billion.

The company announced the multi-year "Leading Beauty Forward" initiative in May 2016, expecting restructuring and other charges of $600 million to $700 millionc before taxes and annual net benefits of $200 million to $300 million once fully implemented. Cash flow from operations was $1.79 billion, down from $1.94 billion, and total debt rose to $2.24 billion from $1.62 billion after new senior notes were issued.

The Lauder family holds approximately 87% of voting power, and KPMG issued an adverse opinion on internal control over financial reporting due to a material weakness in general information technology controls, which management expects to remediate in fiscal 2017. The filing also reports that the largest customer, Macy's Inc., accounted for 9% of fiscal 2016 consolidated net sales, and that the company repurchased about 9.9 million shares for $835.0 milliond during the year.

02—Key points

Key Highlights

  1. Net sales rose 4% to $11.26 billion, with 7% growth in constant currency and excluding accelerated orders, per the filing's non-GAAP reconciliation.
  2. Operating income was $1.61 billion, roughly flat, after $134.7 million of restructuring charges; operating margin was 14.3% versus 14.9%.
  3. Diluted EPS was $2.96 versus $2.82 in fiscal 2015; net earnings attributable to the company were $1.11 billion.
  4. Makeup net sales increased 9% to $4.70 billion, while skin care declined 1% to $4.45 billion.
  5. Leading Beauty Forward initiative expects $600 million to $700 million in pre-tax charges and $200 million to $300 million in annual net benefits once fully implemented.
  6. Total debt increased to $2.24 billion from $1.62 billion, with debt at 39% of total capitalization versus 31% a year earlier.
  7. Management concluded internal control over financial reporting was not effective due to a material weakness in IT general controls; KPMG issued an adverse opinion.

03—One dollar

Follow one dollar

Of each $1.00 of revenue in FY2016, Estée Lauder Companies kept $0.10.

  1. Revenue$11.26B100.0%
  2. Cost of revenue−$2.18B19.4%
  3. Gross profit$9.08B80.6%
  4. Operating costs−$7.47B66.3%
  5. Operating income$1.61B14.3%
  6. Interest, other & tax−$495.0M4.4%
  7. Net income$1.11B9.9%
Computed from 10-KFY2016filed August 24, 2016Computed from this filing’s revenue, gross profit, operating income and net income · right columngrey figure: share of revenue

Where FY2016 revenue went

$11.26B
  • SG&A: $7.34B, 65% of revenue
  • Cost of revenue: $2.18B, 19% of revenue
  • Net income: $1.11B, 9.9% of revenue
  • Other operating costs: $133.0M, 1.2% of revenue
  • Interest, other & tax: $495.0M, 4.4% of revenue

Kept 9.9% as net income

Full revenue history →

04—Financials

Financial Highlights

Figures from 10-KFY2016filed August 24, 2016
Revenue$11.26B80.6% Gross MarginNet Income$1.11B9.9% Net MarginEPS (Diluted)$2.96Total Assets$9.22BCash & Equivalents$914.00MFree Cash Flow$1.26B

Financial Statements

FY2016 against FY2015

Line itemFY2016FY2015Change
Revenue$11.26B$10.78B+4.5%
Cost of Revenue$2.18B$2.10B+3.9%
Gross Profit$9.08B$8.68B+4.6%
SG&A Expenses$7.34B$7.07B+3.7%
Operating Expenses$7.47B$7.07B+5.6%
Operating Income$1.61B$1.61B+0.2%
Interest Expense$71.00M$60.00M+18.3%
Net Income$1.11B$1.09B+2.4%
EPS (Basic)$3.01$2.87+4.9%
EPS (Diluted)$2.96$2.82+5.0%
Shares Outstanding (Basic)370.00M379.30M−2.5%
Shares Outstanding (Diluted)376.60M385.70M−2.4%

05—Questions

Frequently Asked Questions

  1. Why was operating income flat despite higher net sales?

    The filing attributes the flat result to $134.7 million of restructuring charges and about $134 million of unfavorable foreign currency translation, largely offset by the favorable comparison to fiscal 2015 accelerated orders of about $127 million.

  2. What is the material weakness the company reported?

    The company identified ineffective general information technology controls over user access and program change management for certain systems relevant to financial reporting. The filing states it did not result in identified misstatements, and management expects remediation to be completed in fiscal 2017.

  3. How much has the company returned to shareholders?

    The company repurchased about 9.9 million shares for $835.0 million during fiscal 2016 and declared dividends of $1.14 per share for the year, up from $0.92. Subsequent to June 30, 2016 it bought an additional 2.2 million shares for $200.0 million.

  4. How concentrated is the customer base?

    Macy's Inc. was the largest customer, accounting for 9% of consolidated net sales in fiscal 2016 and 13% of accounts receivable at June 30, 2016.

06—Continue

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