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NEW YORK — Estee Lauder on Monday said its fiscal third-quarter profit slid 70 percent due to restructuring charges and weakness in the cosmetics company's travel retail business, as customer traffic in airports waned amid a sagging economy.
But the results beat analysts' estimates, and Estee Lauder shares advanced $2.44, or 7.8 percent, to $33.57 in morning trading.
The New York-based maker of Clinique, Origins, Mac, La Mer and Aveda brand cosmetics, as well as Estee Lauder products, is in the midst of a four-year restructuring under Chief Executive Fabrizio Freda, who took over during the third quarter. It earned $27.2 million, or 14 cents per share, compared with $90.1 million, or 46 cents per share, in the same quarter a year ago.
Excluding restructuring charges and other one-time items, profit was 16 cents per share in the quarter that ended March 31.
Sales slipped 10 percent to $1.7 billion, mostly because of the stronger dollar and weak consumer spending.
Sales declined nearly 17 percent in Europe, the Middle East and Africa, but they rose nearly 4 percent in the Asia-Pacific region.
"Emerging markets and Asia continue to do well for us," Freda said. "Our marketing program in Asia is very effective, and the market is expanding," he added.
Analysts polled by Thomson Reuters forecast profit of 5 cents per share on sales of $1.65 billion. Analyst estimates typically exclude special items.
Chief Financial Officer Richard Kunes said inventory destocking by retailers, which hurt third-quarter results, is continuing in both North America and Europe but beginning "to slow a little bit." Kunes also said retailers in its travel business are destocking Estee Lauder products, as well.
"It's the same pattern that we've seen quite honestly in many of our businesses where everyone is reacting to the economic conditions and pulling down their working capital investments," Kunes said on a conference call.
Lower passenger traffic through Estee Lauder's airport stores cut away at its travel retail business, especially in Europe, the Middle East and Africa. CEO Freda expects traffic to decline 10 percent in this business for fiscal 2009.
The company's fragrance line was especially hard hit across all regions as consumers stayed away from designer fragrances and certain Estee Lauder and Clinique fragrances. For fiscal 2009, fragrance sales are expected to decline.
New York-based Estee Lauder Cos. is in the midst of a restructuring plan which will cut 2,000 jobs, or 6 percent of its work force, freeze merit raises and maintain its hiring freeze under its four-year restructuring.
Deutsche Bank analyst Bill Schmitz Jr. said Estee Lauder's restructuring changes will boost growth over time, but results in the near-term have been hurt by a tough economy.
"Overall, a solid quarter off weak expectations," said Schmitz, who rates the stock "Hold."
Looking ahead to the fourth quarter, which ends June 30, the company expects to earn between 11 cents and 23 cents per share and its sales to fall between 8 percent and 10 percent. Based on year-ago sales of $2.01 billion, that implies sales between $1.81 billion and $1.85 billion.
Analysts expect a 25-cent-per-share profit and sales of $1.71 billion.
For fiscal 2009, the company experts to earn between $1.32 and $1.44 per share and its sales to decline between 1 percent and 3 percent. Based on sales of $7.91 billion a year ago, that implies revenue between $7.12 billion and $7.67 billion.
Analysts polled by Thomson Reuters expect earnings of $1.36 per share and sales of $7.32 billion.
Estee Lauder said it likely will record additional restructuring charges in fiscal 2009 that are yet to be determined. The company's earnings forecast does not include these additional charges.
