01—Abstract
Summary
Summary of the 10-K filed August 23, 2019. Cited figures are marked; the original filing is the authoritative source.
The Estée Lauder Companies Inc. reported fiscal 2019 (year ended June 30, 2019) net sales of $14.86 billiona, up 9% as reported and 11% in constant currency from $13.68 billion in fiscal 2018.
Net earnings attributable to the company were $1.785 billionb, or $4.82 per diluted share, compared with $1.108 billion, or $2.95 per diluted share, in fiscal 2018. Operating income rose to $2.31 billion from $2.06 billion, with operating margin of 15.6%. Diluted EPS excluding restructuring, impairments, contingent consideration changes and tax items rose 18% to $5.34 per share, as stated in the filing's non-GAAP reconciliation.
Growth was led by skin care, which increased 17% to $6.55 billionc, driven by Estée Lauder and La Mer in China and Hong Kong and in travel retail. Makeup grew 4% to $5.86 billion, while fragrance declined 1% and hair care rose 2%. The Americas declined 5% to $4.74 billion and posted an operating loss of $194 million, reflecting Smashbox goodwill and trademark impairments and weaker U.S. department store traffic.
Europe, the Middle East & Africa and Asia/Pacific grew 15% and 21%, respectively. The filing notes that Leading Beauty Forward restructuring charges are now estimated at $950 million to $990 milliond, before taxes, with annual net benefits of $425 million to $475 million. The balance sheet shows cash and cash equivalents of $2.99 billion and total debt of $3.41 billion at June 30, 2019.
Net cash from operating activities was $2.52 billion, and share repurchases totaled $1.56 billion in payments to acquire treasury stock. The company declared a dividend of $.43 per share payable September 16, 2019. The Lauder family controls approximately 86% of voting power, and the company is a controlled company under NYSE rules.
02—Key points
Key Highlights
- Net sales rose 9% to $14.86 billion (11% in constant currency), with skin care up 17% to $6.55 billion.
- Diluted EPS was $4.82 versus $2.95 a year earlier; excluding restructuring, impairments, contingent consideration and tax items, diluted EPS rose 18% to $5.34.
- Operating income increased to $2.31 billion from $2.06 billion, and operating margin reached 15.6% versus 15.0%.
- The Americas net sales fell 5% and posted an operating loss of $194 million, which includes $90 million of Smashbox goodwill and trademark impairments.
- Europe, the Middle East & Africa (up 15%) and Asia/Pacific (up 21%) drove growth, with China and Hong Kong contributing strongly.
- Leading Beauty Forward restructuring and other charges estimate was raised to $950–$990 million, before taxes, with expected annual net benefits of $425–$475 million.
- The Lauder family holds approximately 86% of voting power, and the company relies on controlled-company exemptions from NYSE governance rules.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Estée Lauder Companies kept $0.12.
- Revenue$14.86B100.0%
- Cost of revenue−$3.39B22.8%
- Gross profit$11.48B77.2%
- Operating costs−$9.16B61.6%
- Operating income$2.31B15.6%
- Interest, other & tax−$528.0M3.6%
- Net income$1.78B12.0%
Where FY2019 revenue went
$14.86B- SG&A: $8.86B, 60% of revenue
- Cost of revenue: $3.39B, 23% of revenue
- Net income: $1.78B, 12% of revenue
- Other operating costs: $306.0M, 2.1% of revenue
- Interest, other & tax: $528.0M, 3.6% of revenue
Kept 12% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed August 23, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $14.86B$13.68B | +8.6% |
| Cost of Revenue | $3.39B$2.84B | +19.1% |
| Gross Profit | $11.48B$10.84B | +5.9% |
| SG&A Expenses | $8.86B$8.55B | +3.6% |
| Operating Expenses | $9.16B$8.78B | +4.3% |
| Operating Income | $2.31B$2.06B | +12.6% |
| Interest Expense | $133.00M$128.00M | +3.9% |
| Net Income | $1.78B$1.11B | +61.1% |
| EPS (Basic) | $4.91$3.01 | +63.1% |
| EPS (Diluted) | $4.82$2.95 | +63.4% |
| Shares Outstanding (Basic) | 363.50M368.00M | −1.2% |
| Shares Outstanding (Diluted) | 370.40M375.70M | −1.4% |
05—Questions
Frequently Asked Questions
How did The Estée Lauder Companies perform financially in fiscal 2019?
Net sales were $14.86 billion, up 9% as reported and 11% in constant currency. Net earnings attributable to the company were $1.785 billion, or $4.82 per diluted share, compared with $2.95 a year earlier. Operating income was $2.31 billion, a 15.6% operating margin.
Which product categories and regions drove growth?
Skin care was the main driver, with net sales up 17% to $6.55 billion, led by Estée Lauder and La Mer. Makeup rose 4% to $5.86 billion. Europe, the Middle East & Africa rose 15% and Asia/Pacific rose 21%, while The Americas declined 5%.
What impairments and restructuring charges affected fiscal 2019 results?
The company recorded $90 million of goodwill and other intangible asset impairments related to Smashbox, with $68 million for goodwill and $22 million for the trademark. Charges associated with restructuring and other activities totaled $241 million. Leading Beauty Forward total charges are now estimated at $950–$990 million, before taxes.
What is the company's capital return and liquidity position?
Cash and cash equivalents were $2.99 billion at June 30, 2019, and total debt was $3.41 billion. Payments to acquire treasury stock were $1.56 billion, and dividends paid were $609 million. A dividend of $.43 per share was declared on August 16, 2019.
What governance considerations should investors note?
Members of the Lauder family beneficially own shares with approximately 86% of the voting power. The company is a controlled company under NYSE rules and is exempt from certain requirements, including the requirement that nominating and compensation committees be composed entirely of independent directors.
06—Continue