Estee Lauder Earnings 2020-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

el-20200331

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________________

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-14064

The Estée Lauder Companies Inc.

(Exact name of registrant as specified in its charter)

Delaware

11-2408943

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

767 Fifth Avenue, New York, New York

10153

(Address of principal executive offices)

(Zip Code)

212-572-4200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $.01 par value	EL	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At April 24, 2020, 224,763,197 shares of the registrant’s Class A Common Stock, $.01 par value, and 135,235,429 shares of the registrant’s Class B Common Stock, $.01 par value, were outstanding.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

INDEX


			Page

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Consolidated Statements of Earnings (L oss) — Three and Nine Months Ended March 31, 2020 and 2019			2

Consolidated Statements of Comprehensive Income (Loss) — Three and Nine Months Ended March 31, 2020 and 2019			3

Consolidated Balance Sheets — March 31, 2020 and June 30, 2019 (Audited)			4

Consolidated Statements of Cash Flows — Nine Months Ended March 31, 2020 and 2019			5

Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			38

Item 3. Quantitative and Qualitative Disclosures About Market Risk			69

Item 4. Controls and Procedures			69

Part II. Other Information

Item 1. Legal Proceedings			69

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			70

Item 6. Exhibits			71

Signatures			72

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)


	Three Months Ended March 31						Nine Months Ended March 31
(In millions, except per share data)	2020		2019		2020		2019

Net sales	$	3,345	$	3,744	$	11,864	$	11,273
Cost of sales	836		819		2,785		2,552

Gross profit	2,509		2,925		9,079		8,721

Operating expenses
Selling, general and administrative	2,030		2,170		6,753		6,435
Restructuring and other charges	24		29		54		99
Goodwill impairment	275		48		786		68
Impairments of other intangible and long-lived assets	71		4		337		22
Total operating expenses	2,400		2,251		7,930		6,624

Operating income	109		674		1,149		2,097

Interest expense	42		32		112		101
Interest income and investment income, net	14		15		41		42
Other components of net periodic benefit cost	1		1		3		1
Other income, net	—		71		576		71
Earnings before income taxes	80		727		1,651		2,108

Provision for income taxes	84		170		496		472
Net earnings (loss)	(4)		557		1,155		1,636

Net earnings attributable to noncontrolling interests	(2)		(2)		(9)		(8)
Net earnings (loss) attributable to The Estée Lauder Companies Inc.	$	(6)	$	555	$	1,146	$	1,628

Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share
Basic	$	(.02)	$	1.53	$	3.18	$	4.47
Diluted	$	(.02)	$	1.51	$	3.12	$	4.39

Weighted-average common shares outstanding
Basic	360.2		361.9		360.6		364.0
Diluted	360.2		368.3		367.1		370.9

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended March 31						Nine Months Ended March 31
(In millions)	2020		2019		2020		2019

Net earnings (loss)	$	(4)	$	557	$	1,155	$	1,636

Other comprehensive income (loss):
Net unrealized investment gain	—		9		—		14
Net cash flow hedge gain (loss)	34		(7)		10		2
Amounts included in net periodic benefit cost	6		3		16		10
Translation adjustments	(185)		(72)		(191)		(87)
Benefit (provision) for deferred income taxes on components of other comprehensive income	2		(1)		15		(4)
Total other comprehensive loss	(143)		(68)		(150)		(65)
Comprehensive income (loss)	(147)		489		1,005		1,571

Comprehensive income attributable to noncontrolling interests:
Net earnings	(2)		(2)		(9)		(8)
Translation adjustments	—		—		1		1
	(2)		(2)		(8)		(7)
Comprehensive income (loss) attributable to The Estée Lauder Companies Inc.	$	(149)	$	487	$	997	$	1,564

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED BALANCE SHEETS


(In millions, except share data)	March 31 2020		June 30 2019
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	4,876	$	2,987
Accounts receivable, net	1,846		1,831
Inventory and promotional merchandise	2,087		2,006
Prepaid expenses and other current assets	424		388
Total current assets	9,233		7,212

Property, plant and equipment, net	2,092		2,068

Other assets
Operating lease right-of-use assets	2,446		—
Goodwill	1,633		1,868
Other intangible assets, net	2,190		1,203
Other assets	769		805
Total other assets	7,038		3,876
Total assets	$	18,363	$	13,156

LIABILITIES AND EQUITY
Current liabilities
Current debt	$	1,527	$	516
Accounts payable	1,162		1,490
Operating lease liabilities	371		—
Other accrued liabilities	2,621		2,599
Total current liabilities	5,681		4,605

Noncurrent liabilities
Long-term debt	4,674		2,896
Long-term operating lease liabilities	2,288		—
Other noncurrent liabilities	1,362		1,244
Total noncurrent liabilities	8,324		4,140

Contingencies

Equity
Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at March 31, 2020 and June 30, 2019; shares issued: 451,339,096 at March 31, 2020 and 443,685,124 at June 30, 2019; Class B shares authorized: 304,000,000 at March 31, 2020 and June 30, 2019; shares issued and outstanding: 135,235,429 at March 31, 2020 and 139,537,814 at June 30, 2019	6		6
Paid-in capital	4,760		4,403
Retained earnings	10,595		9,984
Accumulated other comprehensive loss	(712)		(563)
	14,649		13,830
Less: Treasury stock, at cost; 226,588,577 Class A shares at March 31, 2020 and 222,120,630 Class A shares at June 30, 2019	(10,320)		(9,444)
Total stockholders’ equity – The Estée Lauder Companies Inc.	4,329		4,386
Noncontrolling interests	29		25
Total equity	4,358		4,411
Total liabilities and equity	$	18,363	$	13,156

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended March 31
(In millions)	2020		2019

Cash flows from operating activities
Net earnings	$	1,155	$	1,636
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	447		404
Deferred income taxes	(65)		(46)
Non-cash stock-based compensation	210		201
Net loss on disposal of property, plant and equipment	6		6
Non-cash restructuring and other charges	19		—
Pension and post-retirement benefit expense	62		53
Pension and post-retirement benefit contributions	(54)		(23)
Goodwill, other intangible and long-lived asset impairments	1,123		90
Changes in fair value of contingent consideration	(9)		(18)
Gain on liquidation of an investment in a foreign subsidiary, net	—		(71)
Gain on previously held equity method investment	(553)		—
Other non-cash items	(11)		(17)
Changes in operating assets and liabilities:
Increase in accounts receivable, net	(48)		(377)
Increase in inventory and promotional merchandise	(41)		(184)
Increase in other assets, net	(63)		(73)
Decrease in accounts payable	(317)		(105)
Increase in other accrued and noncurrent liabilities	62		280
Increase in operating lease assets and liabilities, net	22		—
Net cash flows provided by operating activities	1,945		1,756

Cash flows from investing activities
Capital expenditures	(468)		(441)
Payments for acquired businesses, net of cash acquired	(1,047)		—
Proceeds from the disposition of investments	—		1,229
Purchases of investments	(5)		(14)
Settlement of net investment hedges	(37)		—
Net cash flows provided by (used for) investing activities	(1,557)		774

Cash flows from financing activities
Proceeds (repayments) of current debt, net	1,514		(167)
Proceeds from issuance of long-term debt, net	1,783		—
Debt issuance costs	(14)		—
Repayments and redemptions of long-term debt	(511)		(1)
Net proceeds from stock-based compensation transactions	148		154
Payments to acquire treasury stock	(883)		(1,344)
Payments of contingent consideration	(3)		—
Dividends paid to stockholders	(502)		(453)
Payments to noncontrolling interest holders for dividends	(7)		(3)
Net cash flows provided by (used for) financing activities	1,525		(1,814)

Effect of exchange rate changes on Cash and cash equivalents	(24)		5
Net increase in Cash and cash equivalents	1,889		721
Cash and cash equivalents at beginning of period	2,987		2,181
Cash and cash equivalents at end of period	$	4,876	$	2,902

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements include the accounts of The Estée Lauder Companies Inc. and its subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated.

The unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019.

Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to current year presentation.

COVID-19 Business Update

During the third quarter of fiscal 2020, the outbreak and global spread of COVID-19 caused a significant disruption in the Company’s operating environment. Accordingly, the Company modified a number of its business practices, in part due to legislation, executive orders and guidance from government entities and healthcare authorities. These include the temporary closing of businesses deemed “non-essential,” travel bans and restrictions, social distancing and quarantines. The Company will continue to monitor the impact of COVID-19 on its consolidated financial statements.

Management Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Descriptions of the Company’s significant accounting policies are discussed in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019. Management evaluates the related estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment, including those related to the impacts of the COVID-19 pandemic, will be reflected in the consolidated financial statements in future periods.

Currency Translation and Transactions

All assets and liabilities of foreign subsidiaries and affiliates are translated at period-end rates of exchange, while revenue and expenses are translated at weighted-average rates of exchange for the period. Unrealized translation gains (losses), net of tax, reported as cumulative translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc. were $(173) million and $2 million, net of tax, during the three months ended March 31, 2020 and 2019, respectively, and $(170) million and $(11) million, net of tax, during the nine months ended March 31, 2020 and 2019, respectively. For the Company’s subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in earnings. These subsidiaries are not material to the Company’s consolidated financial statements or liquidity.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In fiscal 2019, the Company had an investment in a foreign subsidiary that owned the Company’s available-for-sale securities.

During the three months ended March 31, 2019, the Company sold its available-for-sale securities, which liquidated this investment in the foreign subsidiary. As a result, the Company recorded a realized foreign currency gain on liquidation of $77 million and a gross loss on the sale of available-for-sale securities of $6 million, both of which were reclassified from accumulated OCI (“AOCI”) to Other income, net in the accompanying consolidated statements of earnings (loss).

The Company enters into foreign currency forward contracts and may enter into option contracts to hedge foreign currency transactions for periods consistent with its identified exposures. Beginning in the first quarter of fiscal 2020, the Company entered into foreign currency forward contracts to hedge a portion of its net investment in certain foreign operations, which are designated as net investment hedges. See Note 7 – Derivative Financial Instruments for further discussion. The Company categorizes these instruments as entered into for purposes other than trading.

The accompanying consolidated statements of earnings (loss) include net exchange gains on foreign currency transactions of $15 million and $73 million during the three months ended March 31, 2020 and 2019, respectively, and $40 million and $52 million during the nine months ended March 31, 2020 and 2019, respectively.

Concentration of Credit Risk

The Company is a worldwide manufacturer, marketer and distributor of skin care, makeup, fragrance and hair care products. The Company’s sales subject to credit risk are made primarily to department stores, perfumeries, specialty multi-brand retailers and retailers in its travel retail business. The Company grants credit to qualified customers. As a result of COVID-19, the Company has enhanced its assessment of its customers' abilities to pay with a greater focus on factors affecting their liquidity and less on historical payment performance. While the Company does not believe it is exposed significantly to any undue concentration of credit risk at this time, it continues to monitor the extent of the impact of COVID-19 on its customers' abilities, individually and collectively, to make timely payments.

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of:


(In millions)	March 31 2020		June 30 2019
Raw materials	$	540	$	541
Work in process	261		268
Finished goods	1,106		981
Promotional merchandise	180		216
	$	2,087	$	2,006

Property, Plant and Equipment


(In millions)	March 31 2020		June 30 2019
Assets (Useful Life)
Land	$	33	$	29
Buildings and improvements (10 to 40 years)	385		337
Machinery and equipment (3 to 10 years)	840		811
Computer hardware and software (4 to 10 years)	1,297		1,264
Furniture and fixtures (5 to 10 years)	117		116
Leasehold improvements	2,370

Price	196.33	EPS	5
Shares	369	P/E	38
MCap	72,367	P/FCF	67
Net Debt	636	EBIT	2,577
TEV	73,003	TEV/EBIT	28
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-05-01
10-Q	2019-12-31	Filed 2020-02-06
10-Q	2019-09-30	Filed 2019-10-31
10-K	2019-06-30	Filed 2019-08-23
10-Q	2019-03-31	Filed 2019-05-01
10-Q	2018-12-31	Filed 2019-02-05
10-Q	2018-09-30	Filed 2018-10-31
10-K	2018-06-30	Filed 2018-08-24
10-Q	2018-03-31	Filed 2018-05-02
10-Q	2017-12-31	Filed 2018-02-02
10-Q	2017-09-30	Filed 2017-11-01
10-K	2017-06-30	Filed 2017-08-25
10-Q	2017-03-31	Filed 2017-05-03
10-Q	2016-12-31	Filed 2017-02-02
10-Q	2016-09-30	Filed 2016-11-02
10-K	2016-06-30	Filed 2016-08-24
10-Q	2016-03-31	Filed 2016-05-03
10-Q	2015-12-31	Filed 2016-02-05
10-Q	2015-09-30	Filed 2015-11-02
10-K	2015-06-30	Filed 2015-08-20
10-Q	2015-03-31	Filed 2015-05-05
10-Q	2014-12-31	Filed 2015-02-05
10-Q	2014-09-30	Filed 2014-11-04
10-K	2014-06-30	Filed 2014-08-20
10-Q	2014-03-31	Filed 2014-05-02
10-Q	2013-12-31	Filed 2014-02-05
10-Q	2013-09-30	Filed 2013-11-01
10-K	2013-06-30	Filed 2013-08-23
10-Q	2013-03-31	Filed 2013-05-03
10-Q	2012-12-31	Filed 2013-02-06
10-Q	2012-09-30	Filed 2012-11-02
10-K	2012-06-30	Filed 2012-08-17
10-Q	2012-03-31	Filed 2012-05-07
10-Q	2011-12-31	Filed 2012-02-06
10-Q	2011-09-30	Filed 2011-11-04
10-K	2011-06-30	Filed 2011-08-22
10-Q	2011-03-31	Filed 2011-05-06
10-Q	2010-12-31	Filed 2011-02-04
10-Q	2010-09-30	Filed 2010-11-01
10-K	2010-06-30	Filed 2010-08-20
10-Q	2010-03-31	Filed 2010-04-27
10-Q	2009-12-31	Filed 2010-01-28

8-K	2020-05-01
8-K	2020-04-13
8-K	2020-04-07
8-K	2020-04-07
8-K	2020-03-18
8-K	2020-02-21
8-K	2020-02-05
8-K	2019-11-19
8-K	2019-11-18
8-K	2019-11-15
8-K	2019-10-30
8-K	2019-08-16
8-K	2019-04-30
8-K	2019-03-06
8-K	2019-02-14
8-K	2019-02-04
8-K	2018-11-13
8-K	2018-10-30
8-K	2018-10-26
8-K	2018-08-17
8-K	2018-07-19
8-K	2018-05-01
8-K	2018-04-16
8-K	2018-02-14
8-K	2018-02-01

EX-10.1	el-q3fy2020xex101.htm
EX-10.2	el-q3fy2020xex102.htm
EX-31.1	el-q3fy2020xex311.htm
EX-31.2	el-q3fy2020xex312.htm
EX-32.1	el-q3fy2020xex321.htm
EX-32.2	el-q3fy2020xex322.htm

EL 10Q Quarterly Report

Estee Lauder Earnings 2020-03-31