Does The Estée Lauder Companies Inc.’s (NYSE:EL) -15% Earnings Drop Reflect A Longer Term Trend?

After looking at The Estée Lauder Companies Inc.’s (NYSE:EL) latest earnings announcement (30 September 2018), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether Estée Lauder Companies’s performance has been impacted by industry movements. In this article I briefly touch on my key findings.

See our latest analysis for Estée Lauder Companies

Was EL’s recent earnings decline worse than the long-term trend and the industry?

EL’s trailing twelve-month earnings (from 30 September 2018) of US$1.2b has declined by -15% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 1.8%, indicating the rate at which EL is growing has slowed down. Why is this? Let’s examine what’s going on with margins and whether the entire industry is facing the same headwind.

NYSE:EL Income Statement Export January 7th 19
NYSE:EL Income Statement Export January 7th 19

In terms of returns from investment, Estée Lauder Companies has invested its equity funds well leading to a 27% return on equity (ROE), above the sensible minimum of 20%. However, its return on assets (ROA) of 10.0% is below the US Personal Products industry of 13%, indicating Estée Lauder Companies’s are utilized less efficiently. Furthermore, its return on capital (ROC), which also accounts for Estée Lauder Companies’s debt level, has declined over the past 3 years from 29% to 26%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 37% to 80% over the past 5 years.

What does this mean?

Though Estée Lauder Companies’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have unpredictable earnings, can have many factors impacting its business. You should continue to research Estée Lauder Companies to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for EL’s future growth? Take a look at our free research report of analyst consensus for EL’s outlook.
  2. Financial Health: Are EL’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 September 2018. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.