Stock Buy: Estee Lauder

Analysts following Estee Lauder (EL: 59.51 +0.65 +1.10%) expect the company to continue to deliver strong earnings growth.

Company Description

Estee Lauder is a leading global cosmetics firm with a diversified portfolio of well-established brands including Estee Lauder, Aramis, Clinique, Bobbi Brown, and La Mer. The company is also the global licensee of Tommy Hilfiger, Donna Karan, and Sean John.

Cost-Cutting Efforts

In early 2009, Estee Lauder announced a four-year restructuring plan to slash costs by $450 million to $550 million by fiscal 2013. The plan included reducing headcount, closing underperforming businesses, and outsourcing IT processes.

In the first half of fiscal 2010, Estee Lauder achieved total savings of $160 million, which was significantly higher than management expected. The company expects full-year cost savings to reach $275-$300 million. In addition to savings from its restructuring plan, the company also improved its gross margins through more efficient inventory management.

Bullish Outlook

Looking ahead to the third quarter, the company expects to have revenue growth of 9% to 12% including currency benefits and earn $0.20-$0.30 per share. That’s up from $0.16 in the year-ago period. The analysts in the Zacks Consensus are slightly more bullish and expect Estee lauder to report EPS of $0.31. The consensus is up $0.05 in the last three months.

The company’s outlook for fiscal year 2010 calls for EPS of $2.55-$2.73. Again, the analysts in the Zacks consensus are more optimistic and estimate that Estee Lauder will earn $2.77 per share. Three months ago, the consensus was $2.23 per share.

Estee Lauder is scheduled to report third-quarter results at the end of April.

Strong Second-Quarter Results

On January 28, Estee Lauder reported earnings of $1.28 per share, an increase of 60% over the year-earlier quarter. That was also $0.06 ahead of the Zacks Consensus Estimate. Second-quarter revenues were up 11% to $2.26 billion.