Estee Lauder’s Earnings Fall 64%

Estee Lauder Cos. Inc. said today that its quarterly net income fell 64% due to restructuring costs, but forecast better-than-expected earnings for the year ahead because of an accounting change. Net income in its fiscal fourth quarter, which ended June 30, fell to $20.4 million, or 6 cents per share, from $57.2 million, or 22 cents a year ago. The previously announced restructuring charge at Estee Lauder, whose upscale brands include Clinique, Mac and Aramis, was $40.3 million, or 17cents a share, after tax.

The company announced plans in late June, to realign its executive structure, revamp its information systems, close 86 Tommy brand in-store shops and replace displays on its jane cosmetics brand as it integrates operations after a decade of acquisitions. Earnings before restructuring and other one-time items rose 6% to $60.7 million, or 23 cents a share, meeting expectations. Analysts had estimated earnings at 22 cents or 23 cents a share, with a mean of 23 cents,according to market research firm Thomson Financial/First Call.

Sales in the fourth quarter rose 5% to $1.04 billion from $998.9 million last year, led by double digit gains in hair care and fragrances. The strong launch of Estee Lauder Idealist skin refinisher, an anti-aging product, drove 2 percent of revenues last year.

The strongest regional sales growth occurred in Europe, the Middle East and Africa, where every market had local currency salesgrowth, and virtually all had double-digit growth.

The company’s reported revenues continued to be reduced by foreign currency translation.

“Can somebody make the dollar a little weaker please?” Chief Executive Fred Langhammer joked in a conference call with analysts.

In the first quarter of fiscal 2002, the company will adopt a new accounting rule that eliminates the need to write off, or amortize, goodwill and certain other intangible assets.

As a result, Estee Lauder expects earnings per share for the fiscal year of between $1.56 and $1.59, and between 40 cents and 42 cents for the first quarter. These estimates include 6 cents and 1.5 cents, respectively, related to the new accounting change. The First Call estimates, which do not reflect the change, are $1.50 for the year and 40 cents for the quarter.

The company also said it expects 2002 sales on a constant currency basis to be up 7-9%, and sales for the first fiscal quarter to gain 4-5%. The improvement is expected to be weighted toward the second half, as the company benefits from its restructuring and easier year-to-year comparisons.

Since new products are the sales drivers of the beauty industry, the company hopes its streamlined executive decision-making process and more efficient information systems will bring new products to market faster.

The combined saving targets for changes to inventory control, transportation, distribution, procurement and manufacturing range from $90 million to $110 million over the next 3 years and will allow the company to meet its goal of 20 percent cost of goods and 80 percent gross margins, according to Ed Shaw, president of global operations.

Shares of Estee Lauder were up 89 cents at $39.65 in early-afternoon New York Stock Exchange trading. The stock has outperformed Standard & Poor’s Personal Care Index by about 6 percent this calendar year.