Estee Lauder Forecast Lower Profit on Ad Spending

Cosmetics maker Estee Lauder forecast quarterly earnings far below Wall Street estimates due to sharply higher spending on advertising, sending its shares down 3.4 percent.

It would be the first profit miss in more than a year for the company

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[EL  Loading...      ()   ], whose full-year outlook also fell short of analysts’ expectations.

“We recommend that investors buy on any weakness tied to the third-quarter guidance, as investment spending in this quarter should lead to stronger sales and earnings growth in the future,” BMO Capital Markets analyst Connie Maneaty wrote in a note to clients.

Estee Lauder said on Friday it expects to earn 28 cents to 32 cents a share in the current quarter — its fiscal third quarter — before a restructuring charge. Analysts' average forecast was 41 cents, according to Thomson Reuters I/B/E/S.

The company also reported higher second-quarter sales and earnings, but the weak forecast eclipsed those results.

William Lauder, the company's executive chairman, told CNBC that Estee Lauder has seen some issues with consumer demand in certain parts of Europe, including Italy, Spain, and Greece.

“There's just a pullback in the consumer confidence there,” he said. “We're not seeing that pullback in confidence here in North America however. Our business here in North America is strong and is stronger now than it has been in many years.”

The maker of Bobbi Brown, MAC, and Clinique brands of beauty products said it would raise global advertising spending by about $80 million — equal to 14 cents a share — in the third quarter as it introduces new products. In the previous fiscal year, its biggest investment spending came in the fiscal fourth quarter.

“We have a certain pipeline of launches and a need to grow market share, especially in emerging markets, that require an increase of advertising. We are not here to manage the quarters; we are here to manage the company for the long term,” Chief Executive Fabrizio Freda said in a phone interview. “The markets will react according to what they think is right, but over time they always recognize a financially strong company.”

Earlier, Freda said on a conference call that Clinique makeup sales in North America grew 13 percent in the second quarter, confirming advertising attracted new consumers.

He also said the company's higher-end brands like Bobbi Brown, Tom Ford and Jo Malone were doing very well, as shoppers in America were back to buying.

"Older people that can afford to buy are tired of austerity and are now not stopped by their worries over the economy or by a politically correct concept of not buying," Freda said.

For the second quarter, ended Dec. 31, Estee Lauder posted a higher profit as strong demand for its makeup and skin-care products lifted sales.

Net income at the company, which competes with L'Oreal SA and Avon Products

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[AVP  Loading...      ()   ] among others, rose to $396.7 million, or $1.00 a share, from $343.9 million, or 86 cents a share, a year earlier.

Excluding special items, profit was $1.01 a share, in line with analysts' average forecast.

Estee Lauder shares were down $2.00 to $56.85 in midday trade on the New York Stock Exchange after falling as low as $54.00 earlier in the day.