Estee Lauder Stock Could Turn Ugly

In the last three months, shares of Estee Lauder (EL) are down 15%. On Wednesday, the company posted mixed first-quarter fiscal 2017 results.

Estee Lauder is down about 6.5% year to date. The company posted a mixed first quarter, like the fourth quarter before it. Estee Lauder reported first-quarter earnings of 84 cents per share, 4 cents better than the consensus estimate. Revenue rose 1.1% to $2.87 billion.

Management cut guidance. The company said second-quarter earnings would be in the range of $1.10 to $1.15 per share, vs. the previous estimate of $1.31. Approximately 2%, or 5 cents, of the cut is due to the negative effects of foreign currency. Sales have slowed as well. The company said revenue is set to increase between 3% and 4%, vs. prior forecasts of 6.4% growth.

Gross margin was 79.3%, down 30 basis points. Operating margins were flat at 15.7%.

The company raised the dividend 13% to 34 cents per share.

For the year-end, management cut the top end of its prior guidance. Management predicts earnings between $3.38 and $3.44 per share, vs. the previous estimate of $3.47. Sales are expected to increase between 6% and 7%. On a constant currency basis, fully diluted earnings per share are expected to be up between 8% and 10%.

While the company trimmed guidance, management seems confident business could accelerate because of a flow of new products, especially from the small- and medium-sized brands. The company foresees approximately one-third of its product portfolio growing by the low single digits. The rest of the portfolio is growing in the high single digits to double digits.

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