Estee Lauder Cos., Inc. (EL) Q3 2014 Earnings Call Corrected Transcript: 02-May-2014
Dennis D'Andrea - Vice President-Investor Relations, Estee Lauder Cos., Inc.Fabrizio Freda - President, Chief Executive Officer & Director, Estee Lauder Cos., Inc. Cedric Prouve - Group President-International, Estee Lauder Cos., Inc. Tracey Thomas Travis - Chief Financial Officer & Executive Vice President, Estee Lauder Cos., Inc. Other Participants Mark S. Astrachan - Analyst, Stifel, Nicolaus & Co., Inc. Chris Ferrara - Analyst, Wells Fargo Securities LLC John A. Faucher - Analyst, JPMorgan Securities LLC Olivia Tong - Analyst, Bank of America Merrill Lynch Steve R. Powers - Analyst, UBS Securities LLC Neely J. N. Tamminga - Analyst, Piper Jaffray & Co (Broker) Alice B. Longley - Analyst, The Buckingham Research Group, Inc. Sean R. King - Analyst, Goldman Sachs & Co. Ali Dibadj - Analyst, Sanford C. Bernstein & Co. LLC Wendy C. Nicholson - Analyst, Citigroup Brian Doyle - Analyst, CLSA Americas LLC Javier Escalante - Analyst, Consumer Edge Research LLC William G. Schmitz - Analyst, Deutsche Bank Securities, Inc. Nik H. Modi - Analyst, RBC Capital Markets LLC MANAGEMENT DISCUSSION SECTION Operator: Good day everyone, and welcome to Estee Lauder Companies Fiscal 2014 Third Quarter Conference Call. Today's call is being recorded and webcast. For opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Dennis D'Andrea. Please go ahead, sir. Dennis D'Andrea, Vice President-Investor Relations Good morning everyone. On today's call are Fabrizio Freda, President and Chief Executive Officer; Tracey Travis, Executive Vice President and Chief Financial Officer; and Cedric Prouve, Group President of International for The Estee Lauder Companies. Cedric will discuss strategy and current results for key markets outside of North America. Since many of our remarks today contain forward-looking statements, let me refer you to our press release and our reports filed with the SEC, where you'll find factors that could cause actual results to differ materially from these forward-looking statements. Our discussion of our financial results and our expectations are before restructuring and other charges, including the remeasurement charge related to Venezuela. In addition, we will discuss results before the impact of accelerated retail orders that took place in the prior-year quarter due to the implementation of our Strategic Modernization Initiative, and the impact on our full-year expectations of accelerated retail orders expected in the quarter ending June 30, 2014. You can find reconciliation between GAAP and non-GAAP figures in our press release and on the Investor Relations section of our website. And with that, I'll turn it over to Fabrizio. Fabrizio Freda, President, Chief Executive Officer & Director Thank you, Dennis, and good morning everyone. I'm pleased to report that our successful track record continued in the third quarter of fiscal 2014, as our strategy helped us deliver excellent results. We have generated sustainable profitable and uninterrupted year-over-year sales growth quarter-after-quarter for nearly five years. This achievement has been driven by our superb creativity and innovation. Broad portfolio of prestige beauty brands, a business that's well diversified across categories, countries and channels and the flexibility to direct our investments to the best opportunities. In the third quarter, our sales rose 12% in local currency, slightly higher than our estimate. Diluted earnings per share before charges were $0.64 ahead of our forecast and up 42% from a year ago. Our strong performance came from leveraging our sales and rebalancing our marketing activities. We continue to be financially disciplined with a flexibility to support strong growth areas, while managing more prudently in others. As a reminder, last year third quarter sales reflected a shift of $94 million of accelerated orders into the second quarter in advance of our SAP rollout. Adjusting for the shift, our underlining local currency sales gain this quarter would have been 8%, that increase is approximately double the annual growth of prestige beauty, which we estimate will be 3% to 4% this year. Global prestige beauty continues to benefit from favorable demographics in attracting new consumers from us. With our singular focus on prestige beauty on a worldwide view into consumer trends identified by our 10-year compass, we had positioned our company in many of the fastest growing and largest areas, making us confident we can continue outpacing the industry overall. With 30 brands and more than 10 distribution channels around the globe, virtually every part of our business can fuel our growth. Depending on local economies, the cadence of our innovation and changing consumer desires, various brands, categories regions and channels can be star performers. The key for us is recognizing what's exceeding and being flexible. So as market dynamic change, we react quickly and put greater resources into the best opportunities, which has allowed us to excel and gain share globally. Over the course of the year, we rely on all parts of our business to drive our sales growth, but the contribution from our multiple engines will vary by quarter. For example, during the first quarter of fiscal year 2014, China, our luxury brands and online drove much of our growth. In the second quarter, the U.S., UK, makeup, travel retail and online lead the way. In the third quarter, our energy markets Europe MAC and our luxury brands accounted for much of our sales gains. Having many growth engines is one of our best attributes and illustrates the breadth and the depth of our business. They provide balance and reduce the risk of being overly dependent on any one part of our business to achieve sustainable profitable growth. Our industry leadership was recently confirmed by a leading global market research firm. It reported that in calendar 2013, we strengthened our position by adding 20 basis points of share, reinforcing our status as the number one company worldwide in total prestige beauty. We gained share in prestige skin care and makeup on a total global basis as well as in some key markets and regions demonstrating the strengths of our resource allocation choices. Being nimble has allowed us to deliver strong results, despite several challenging markets. Looking at our product categories, skin care and makeup remain our priorities, since they account for the vast majority of our business and present the largest opportunities.