Cosmetic Blemishes: Estée Lauder's Mixed Earnings And Oppenheimer Downgrade

Shares of Estée Lauder Companies Inc (NYSE:EL) have been under pressure since early May following its mixed financial results for the third quarter, even more so Monday following a downgrade by Oppenheimer.

By The Numbers: Estée Lauder on May 3 reported third quarter earnings of 47 cents per share, which missed a Street estimate of 51 cents, on revenues of $3.751 billion, slightly ahead of a $3.71 billion Street estimate, according to Benzinga Pro.

The Estée Lauder Analyst: Rupesh Parikh downgraded Estée Lauder to Perform from an Outperform rating, and did not update the price target.

While U.S. sales managed to grow 3% year over year, Parikh noted the Asia/Pacific region took a hit, with sales falling by 1%.

The company’s Europe, Middle East & Africa region saw a dramatic sales drop of 26%, primarily due to declining sales in the Asia travel retail sector, the analyst said.

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Despite a decrease in operating expenses, Oppenheimer noted gross profit fell 20% year over year to $2.59 billion, with the margin contracting 750 basis points to 69.1%.

Estée Lauder CEO Fabrizio Freda explained to investors that the lowered organic sales and EPS outlook for fiscal 2023 was due to the volatile and slow recovery from the pandemic in the Asia travel retail sector. Parikh noted that Freda expects significantly more challenges in the fourth quarter than he had initially forecasted in February.

Oppenheimer revised its forecast and said that consensus figures for the company are overly optimistic, flagging the premium valuation of EL shares and potential conservative guidance in August as significant risks.

While the analyst noted the company’s longer-term prospects due to its position in the global prestige beauty category, he said the beauty giant is no longer seen as a "beat and raise" story, suggesting an increased risk to the company’s premium multiple that may impact investor sentiment.

EL Price Action: Shares of Estée Lauder are trading 3.52% lower to $181.67, according to Benzinga Pro. The stock is down nearly 11% in the last month, and has traded in a range of $182.02 – $284.45 over the last 52-weeks.

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