Estee Lauder's net income doubles

AP News
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Posted: May 05, 2011 12:37 PM
Estee Lauder's net income doubles

Strong overseas sales and continuing cost-cutting helped more than double third-quarter net income at cosmetics seller Estee Lauder, the company said Thursday.

The company raised its forecast for full-year earnings as it reported net income of $125 million, or 62 cents per share, for the quarter that ended in March. That's more than double the $58 million, or 28 cents per share, it reported a year earlier.

Estee Lauder Companies Inc. sells higher-end makeup, perfumes and skin care products under brands including Clinique, Bobbi Brown and Donna Karan. In an interview with The Associated Press, CEO Fabrizio Freda said he believes that confidence is improving in the U.S., at least among the more-affluent customers that his company targets.

"They're buying, and they seem to be more interested in quality and service, and we are being rewarded by this new trend," Freda said.

Emerging markets including Brazil, China and South Africa helped drive sales, Freda said, though demand softened in some Western European countries such as Portugal and Spain.

Freda said rising prices for commodities such as fuel or wood pulp were "not particularly relevant" to Estee Lauder. He said he doesn't plan to raise prices above inflation trends. Many retailers and consumer product makers are charging their customers more in an effort to offset the higher commodity costs.

Oppenheimer & Co. analyst Joe Altobello said Estee Lauder is benefiting from new products as well as a healthy upper-income consumer. New products include skin creams that are supposed to reduce wrinkles and dark spots.

But Altobello said he believed the company's shares had already priced in those benefits, and he left his "perform" rating unchanged.

Estee Lauder's shares rose $1.13, a little more than 1 percent, to $96.94 by mid-day.

Excluding one-time items, the company said it earned 71 cents per share, beating analysts' average forecast for 57 cents per share, according to FactSet.

Revenue rose 16 percent to $2.17 billion, beating analysts' average forecast for $2.04 billion.

Makeup sales rose faster than skin care, hair care and perfume, partly because of Estee Lauder's purchase last summer of Smashbox.

Estee Lauder said its revenue rose 20 percent in Europe, the Middle East and Africa, and it expects strong growth to continue in those regions. It was more cautious about the Americas, where sales rose 12 percent overall.

Online sales in the U.S. and Latin America increased by double digits, the company said. In Africa, the company sells only in South Africa. In the Middle East, it sells in more-developed countries such as the United Arab Emirates.

Estee Lauder introduced an aggressive cost-cutting plan in 2009, the depths of the recession, that includes cutting jobs, slashing inventory and outsourcing. The company expects to record a charge of $60 million to $70 million for the year to account for the changes.

In the third quarter, Estee Lauder recorded a charge of $36 million to reflect the declining value of its Ojon hair care brand.

Estee Lauder raised its forecast for full-year earnings to $3.55 to $3.65 per share, excluding one-time items. In March, it predicted earnings of $3.20 to $3.43 per share for the year.

Freda said the company's broad portfolio helps.

The company expects to increase advertising through June as it launches new products.