NEW YORK (TheStreet) -- It wasn't looking pretty for Estee Lauder ( (EL)) shares on Wednesday after the cosmetics and beauty brand reported a weaker-than-expected earnings outlook on slowing demand in Asian markets and individual European countries.
By late afternoon, shares had unloaded 5.5% to $65.40.
Through fiscal 2014 ending June, the New York-based company said it expects continued weakness in its beauty brands in Korea and certain European countries, such as Switzerland and France, as well as a near-term slowing of demand in China and Hong Kong.
In the Americas, Estee Lauder sees growth in the U.S., albeit at a slower pace than in 2013, while Latin America will be watched closely for signs of negative headwinds, particularly the potential devaluation of the Venezuelan bolivar.
"Continued strength overall in emerging markets more than compensated for soft results in certain European countries and solid but slowing Chinese market growth," said CEO Fabrizio Freda in a statement.
For the March-ending third quarter, net sales are forecast to grow between 10% and 11%, or approximately $2.52 billion to $2.54 billion, with foreign exchanges negatively impacting revenue by 1% to 2%. Net income is projected between 52 cents and 55 cents a share, below consensus of 63 cents a share from analysts surveyed by Thomson Reuters.
Full-year sales are expected to grow between 6% and 7%, with net income in the range of $2.80 to $2.87 a share, just shy of analysts' $2.88.
For its second quarter, Estee Lauder reported net income of $1.09 a share three cents above consensus. Revenue of $3.02 billion, though 3.1% higher year-over-year, was short expectations of $3.05 billion.
By region, sales in the Americas climbed 4%, buoyed by price increases in Venezuela as a result of inflation and double-digit online sales growth in the U.S.
In EMEA (Europe, the Middle East and Africa), sales climbed 7%, a result of double-digit growth seen in Russia, South Africa, Turkey and Israel. Sales were flat in Asia, depressed by lower currency sales in China, Taiwan and Korea.
TheStreet Ratings team rates LAUDER (ESTEE) COS INC as a Buy with a ratings score of A-. The team has this to say about their recommendation:
"We rate LAUDER (ESTEE) COS INC (EL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, increase in net income and good cash flow from operations. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
- You can view the full analysis from the report here: EL Ratings Report