01—Abstract
Summary
Summary of the 10-K filed August 24, 2018. Cited figures are marked; the original filing is the authoritative source.
The Estée Lauder Companies Inc. reported fiscal 2018 (year ended June 30, 2018) net sales of $13.68 billiona, up from $11.82 billion in fiscal 2017, with reported net sales growth of 16% (13% in constant currency).
Operating income rose to $2.05 billionb from $1.69 billion, and operating margin increased to 15.0% from 14.3%. Net earnings attributable to the company fell to $1.11 billion from $1.25 billion, and diluted EPS declined to $2.95 from $3.35, largely reflecting a $351 million provisional Transition Tax and other Tax Cuts and Jobs Act charges that raised the effective tax rate to 43.6%. Excluding these and other items, the company reports diluted EPS as adjusted of $4.51 versus $3.47, up 30%.
Growth was broad across product categories, led by skin care (up 24% to $5.60 billionc) and makeup (up 11% to $5.63 billion), with Europe, the Middle East & Africa (up 21%) and Asia/Pacific (up 29%) as the strongest regions, driven by travel retail and China. The Americas grew 4%, but operating income there fell to $211 million from $284 million. Cash flow from operations rose to $2.57 billion from $1.80 billion, and cash and cash equivalents increased to $2.18 billion.
Total debt was $3.54 billiond, and total debt as a percent of total capitalization decreased to 43% from 45%. The filing also highlights the Leading Beauty Forward restructuring program, whose total estimated charges were raised to $900 million to $950 million before taxes, with estimated annual net benefits of $350 million to $450 million.
The Lauder family controls approximately 87% of voting power through its Class A and Class B shares, and the company is a controlled company under NYSE rules. The filing also notes a review of certain product advertising claims that management does not expect to be material.
02—Key points
Key Highlights
- Net sales rose 16% to $13.68 billion in fiscal 2018 (13% in constant currency), with growth in every product category and geographic region.
- Operating income increased 21% to $2.05 billion, and operating margin improved to 15.0% from 14.3%.
- Reported diluted EPS fell 12% to $2.95, reflecting $351 million of Transition Tax and other TCJA charges; diluted EPS as adjusted rose 30% to $4.51.
- Asia/Pacific net sales grew 29% to $3.04 billion, and Europe, the Middle East & Africa grew 21% to $5.63 billion, led by travel retail and China.
- Operating cash flow more than doubled reach... rose to $2.57 billion from $1.80 billion, and cash and equivalents increased to $2.18 billion.
- Leading Beauty Forward restructuring cost estimate was raised to $900 million to $950 million, with expected annual net benefits of $350 million to $450 million.
- The Lauder family holds 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 FY2018, Estée Lauder Companies kept $0.08.
- Revenue$13.68B100.0%
- Cost of revenue−$2.84B20.8%
- Gross profit$10.84B79.2%
- Operating costs−$8.78B64.2%
- Operating income$2.06B15.0%
- Interest, other & tax−$947.0M6.9%
- Net income$1.11B8.1%
Where FY2018 revenue went
$13.68B- SG&A: $8.55B, 63% of revenue
- Cost of revenue: $2.84B, 21% of revenue
- Net income: $1.11B, 8.1% of revenue
- Other operating costs: $231.0M, 1.7% of revenue
- Interest, other & tax: $947.0M, 6.9% of revenue
Kept 8.1% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed August 24, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $13.68B$11.82B | +15.7% |
| Cost of Revenue | $2.84B$2.43B | +16.8% |
| Gross Profit | $10.84B$9.39B | +15.4% |
| SG&A Expenses | $8.55B$7.46B | +14.7% |
| Operating Expenses | $8.78B$7.69B | +14.3% |
| Operating Income | $2.06B$1.70B | +20.6% |
| Interest Expense | $128.00M$103.00M | +24.3% |
| Net Income | $1.11B$1.25B | −11.3% |
| EPS (Basic) | $3.01$3.40 | −11.5% |
| EPS (Diluted) | $2.95$3.35 | −11.9% |
| Shares Outstanding (Basic) | 368.00M367.10M | +0.2% |
| Shares Outstanding (Diluted) | 375.70M373.00M | +0.7% |
05—Questions
Frequently Asked Questions
What drove the fiscal 2018 earnings decline despite higher sales and operating income?
Net earnings attributable to the company fell to $1.11 billion from $1.25 billion. The filing attributes this mainly to the TCJA, including a $351 million provisional Transition Tax charge, which raised the effective tax rate to 43.6% from 22.3%.
Which product categories and regions drove growth?
Skin care net sales rose 24% to $5.60 billion, mainly from Estée Lauder and La Mer, and makeup rose 11% to $5.63 billion. By region, Asia/Pacific rose 29% and Europe, the Middle East & Africa rose 21%, while the Americas rose 4%.
What is the status of the Leading Beauty Forward restructuring program?
The company now estimates total restructuring and other charges of $900 million to $950 million before taxes, up from $600 million to $700 million previously. It expects annual net benefits of $350 million to $450 million after full implementation, compared with its prior estimate of $200 million to $300 million.
How much control does the Lauder family have over the company?
As of August 17, 2018, Lauder family members beneficially owned Class A and Class B shares representing approximately 87% of the outstanding voting power. The company is therefore a controlled company under NYSE rules and relies on related exemptions from certain governance requirements.
What is the company's balance sheet and liquidity position?
Total debt was $3.54 billion at June 30, 2018, and total debt as a percent of total capitalization decreased to 43% from 45%. Cash and cash equivalents were $2.18 billion, and the company had a $1.5 billion undrawn revolving credit facility.
06—Continue