Estee Lauder says 3Q profit more than doubles, but offers outlook below estimates; stock falls

Estee Lauder 3Q profit rises; outlook below views

NEW YORK — Strong results overseas and better demand for more expensive products such as the $130-an-ounce La Mer skin cream helped Estee Lauder Cos.’ fiscal third-quarter profit more than double.

The cosmetics maker said Tuesday that a “modest pickup” in consumer demand in the U.S. also helped revenue there edge higher.

But the company said it would take restructuring charges of up to $90 million in fiscal 2010 and provided an adjusted earnings outlook below current Wall Street expectations.

Shares fell $3.57, or 5 percent, to $66.45 during afternoon trading trading. The stock has traded between $27.68 and $71.29 during the past year.

Cosmetics makers have had to deal with cautious U.S. consumer spending, particularly on more expensive products, during the recession. But Estee Lauder executives said spending was starting to pick up, promisingly, on high end or “prestige” products.

Sales of La Mer cream, for example, grew in the double-digit percentage range, with particular strength in North America.

“We believe that consumers are beginning to reconsider luxury products, which certainly bodes well for our entire ‘prestige’ portfolio,” said CEO Fabrizio Freda during a call with analysts.

In the U.S., consumers are still focused on value, but are “emotionally more open to buying again,” Freda said in an interview with the Associated Press. “I don’t believe the consumer is ‘back’ but there are early signs of a recovery.”

Travel retail was a strong point, sales in the channel jumped 45 percent, although that jump was partly due to weak results in the prior year quarter. Also, traffic increased and more browsers bought items, the company said.

In the current quarter, the travel stoppage due to the Iceland volcano hurt travel retail revenue by $5 million to $7 million.

Estee Lauder’s earnings surged to $57.5 million, or 28 cents per share, for the period ended March 31. That compares with a profit of $27.2 million, or 14 cents per share, a year earlier.

Taking out restructuring charges and other items totaling 6 cents per share, profit was 34 cents per share, beating analyst expectations of the 32 cents per share, per a Thomson Reuters poll. These estimates typically remove one-time items.

Third-quarter performance benefited from cost-cutting efforts, saving about $104 million in the quarter.

Revenue rose 9 percent to $1.86 billion on better results from its skin care, makeup, fragrance, and hair care units and strength in its Asia/Pacific region. The results missed analysts’ estimate of $1.88 billion.

Estee Lauder said it worked with European perfumeries to replace and discontinue products with weak demand with products that sell more quickly, resulting in a $31 million charge for returns.

Nearly 60 percent of Estee Lauder’s revenue comes from overseas. Revenue in the Americas rose 3 percent to $829.1 million. Revenue rose nearly 14 percent to $662 million in Europe, the Middle East and Africa and 20 percent in the Asia Pacific region to $371.1 million. Online revenue rose 25 percent.

Estee Lauder has increased efforts in Asia and Europe to create products relevant to local, multicultural consumers. As the economy improves, the company said it is boosting ad and marketing spending “significantly” in the fourth quarter in an effort to boost sales.

For fiscal 2010, Estee Lauder predicts adjusted earnings between $2.65 and $2.75 per share. That is up from its outlook in January of $2.55 to $2.73 per share, but shy of Wall Street’s estimate of $2.79 per share. The company also anticipates sales will rise 4 percent to 5 percent.

Estee Lauder announced separately on Tuesday that it started a cash tender offer for up to $200 million senior notes due 2012 and 2013. It plans to fund the note purchases with available cash.

AP Retail Writer Michelle Chapman contributed to this report from New York.