01—Abstract
Summary
Summary of the 10-K filed August 25, 2017. Cited figures are marked; the original filing is the authoritative source.
The Estée Lauder Companies Inc. reported net sales of $11.82 billiona for fiscal 2017 (year ended June 30, 2017), up from $11.26 billion in fiscal 2016, with net earnings attributable to the company of $1.25 billion and diluted earnings per share of $3.35, compared with $2.96 in fiscal 2016.
Reported operating income rose to $1.69 billionb from $1.61 billion, though operating margin was flat at 14.3%. The company cited growth in makeup, skin care and fragrance, supported by the fiscal 2017 acquisitions of Too Faced and BECCA, partly offset by softer U.S. brick-and-mortar department store traffic and unfavorable foreign currency translation of approximately $187 million on net sales. Charges associated with restructuring and other activities rose to $212 million under the multi-year Leading Beauty Forward program, which the company expects to total $600 million to $700 million before taxes.
Balance sheet and cash flow changed meaningfully during the year. Total assets rose to $11.57 billionc from $9.22 billion, largely reflecting the acquisitions, with goodwill increasing to $1.92 billion and other intangible assets to $1.33 billion. Total debt increased to $3.57 billion from $2.24 billion following February 2017 senior note issuances, and total debt as a percent of total capitalization rose to 45% from 39%.
Net cash provided by operating activities was $1.80 billiond, and cash and cash equivalents ended the year at $1.14 billion. The company paid $1.32 per share in dividends declared during fiscal 2017, compared with $1.14 in fiscal 2016. Governance and risk remain significant considerations for investors.
Members of the Lauder family beneficially own shares with approximately 87% of the outstanding voting power, and the company is a 'controlled company' under New York Stock Exchange rules. The company also reported a goodwill impairment of $28 million and other intangible asset impairments of $3 million tied to the RODIN olio lusso and Editions de Parfums Frédéric Malle brands, and it disclosed that a previously reported material weakness in general information technology controls had been remediated as of June 30, 2017.
02—Key points
Key Highlights
- Net sales of $11.82 billion in fiscal 2017, up from $11.26 billion in fiscal 2016; the filing states reported net sales increased 5% and 7% in constant currency.
- Net earnings attributable to The Estée Lauder Companies Inc. of $1.25 billion, or $3.35 diluted EPS, versus $2.96 in fiscal 2016.
- Operating income of $1.69 billion with operating margin of 14.3%, flat year over year, with restructuring charges of $212 million weighing on results.
- Makeup net sales rose to $5.05 billion, aided by the fiscal 2017 acquisitions of Too Faced and BECCA, while hair care declined to $539 million.
- Total debt increased to $3.57 billion from $2.24 billion after February 2017 senior note issuances; total debt to total capitalization rose to 45% from 39%.
- Leading Beauty Forward restructuring program expected to produce annual net benefits of $200 million to $300 million before taxes once fully implemented.
- Lauder family controls approximately 87% of voting power, and the company is a 'controlled company' exempt from certain NYSE governance requirements.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Estée Lauder Companies kept $0.11.
- Revenue$11.82B100.0%
- Cost of revenue−$2.43B20.6%
- Gross profit$9.39B79.4%
- Operating costs−$7.69B65.0%
- Operating income$1.70B14.4%
- Interest, other & tax−$455.0M3.8%
- Net income$1.25B10.6%
Where FY2017 revenue went
$11.82B- SG&A: $7.46B, 63% of revenue
- Cost of revenue: $2.43B, 21% of revenue
- Net income: $1.25B, 11% of revenue
- Other operating costs: $226.0M, 1.9% of revenue
- Interest, other & tax: $455.0M, 3.8% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed August 25, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $11.82B$11.26B | +5.0% |
| Cost of Revenue | $2.43B$2.18B | +11.6% |
| Gross Profit | $9.39B$9.08B | +3.4% |
| SG&A Expenses | $7.46B$7.34B | +1.7% |
| Operating Expenses | $7.69B$7.47B | +2.9% |
| Operating Income | $1.70B$1.61B | +5.8% |
| Interest Expense | $103.00M$71.00M | +45.1% |
| Net Income | $1.25B$1.11B | +12.0% |
| EPS (Basic) | $3.40$3.01 | +13.0% |
| EPS (Diluted) | $3.35$2.96 | +13.2% |
| Shares Outstanding (Basic) | 367.10M370.00M | −0.8% |
| Shares Outstanding (Diluted) | 373.00M376.60M | −1.0% |
05—Questions
Frequently Asked Questions
How did The Estée Lauder Companies perform financially in fiscal 2017?
Net sales grew to $11.82 billion from $11.26 billion, and net earnings attributable to the company rose to $1.25 billion from $1.12 billion, with diluted EPS of $3.35 versus $2.96. Operating income increased to $1.69 billion, while operating margin was flat at 14.3%.
What drove the growth in net sales?
The filing attributes growth primarily to the makeup category, including incremental sales from the Too Faced and BECCA acquisitions, as well as higher sales of Tom Ford and Estée Lauder products, skin care (notably La Mer), and fragrance (notably Jo Malone London). Hair care declined, and U.S. brick-and-mortar department store traffic was a continuing headwind.
How much debt did the company take on, and why?
Total debt rose to $3.57 billion at June 30, 2017 from $2.24 billion, primarily due to the February 2017 issuance of 1.80% Senior Notes due 2020, 3.15% Senior Notes due 2027 and 4.15% Senior Notes due 2047, each with a $500 million principal amount. Proceeds were used for general corporate purposes, including repaying commercial paper and refinancing the 5.55% Senior Notes due May 2017.
What is the Leading Beauty Forward program and what does it cost?
Leading Beauty Forward is a multi-year initiative announced in May 2016 to optimize corporate functions, supply chain, and market support structures and to exit underperforming businesses. The company expects total related restructuring and other charges of $600 million to $700 million before taxes, with annual net benefits of $200 million to $300 million once fully implemented, and expects to complete initiatives through fiscal 2021.
Who controls the company and what does that mean for shareholders?
The Lauder family beneficially owns shares with approximately 87% of outstanding voting power. The filing states this gives the family significant influence over matters requiring stockholder approval, including director elections and significant corporate transactions such as a merger or sale, and that the company relies on controlled-company exemptions from certain NYSE governance requirements.
06—Continue