By  on August 1, 2014

PARIS — L’Oréal on Thursday bucked the trend in beauty by reporting a 1.5 percent increase in first-half profits despite missing analysts’ expectations for second-quarter sales growth due to weakness in North America.

The world’s largest beauty company reported net profits of 1.73 billion euros, or $2.35 billion, for the first half ended June 30, compared with profits of 1.71 billion euros, or $2.32 billion, in the corresponding period a year earlier. L’Oréal only reports profits twice a year.

Sales fell 1.5 percent to 11.17 billion euros, or $15.32 billion, from 11.34 billion euros, or $15.42 billion. On a like-for-like basis, they grew 3.8 percent.

Second-quarter sales picked up against the first quarter, but remained dampened by business in North America. The world’s largest beauty maker said that its revenues dipped 0.7 percent to 5.54 billion euros, or $7.59 billion, in the three months ended June 30. On a like-for-like basis, however, company sales advanced 4.1 percent, versus the previous quarter’s 3.5 percent uptick.

Despite the sales decline in the second quarter and first half, L’Oréal continues to outperform many of its peers. Also on Thursday, Avon Products Inc. reported a profit decline for the second quarter, while Shiseido registered a loss for its first quarter.

“While partly driven by a slightly easier [comparison], L’Oréal’s performance stands out in the string of top-line misses within [health and personal care] thus far this earnings season,” wrote Consumer Edge Research analyst Javier Escalante in a note.

“The miss on the top line [consensus of 4.3 percent and Sanford C. Bernstein & Co.’s estimate of 4.4 percent] might take some headlines, but it was only a marginal miss and was a slight improvement over Q1,” wrote Andrew Wood, a senior analyst at the research and brokerage firm. “Most [L’Oréal] businesses were in-line with expectations….New Markets were a little light [at plus 7 percent], but Luxe was good [at plus 7.5 percent].”

Although company revenues in North America were in negative territory — down 3.3 percent in reported terms — on a like-for-like basis they were on the up, advancing 2.4 percent versus a 0.6 percent dip in the first quarter.

“The performance in North America was ahead of our expectations, driven by Professional Products, Active Cosmetics and with L’Oréal Luxe gaining share,” wrote Wood.

The company noted ongoing “strong” performances in the first half in its Luxe and Active Cosmetics Divisions. There was a “gradual improvement” of the Professional Products Division, while a “sluggish” U.S. market and a slowdown — to a certain extent — in New Markets held back the Consumer Products Division, which is L’Oréal’s largest branch.

L’Oréal posted operating profits of 2.03 billion euros, or $2.78 billion, a 0.2 rise percent versus the same prior-year period. Operating profitability was 18.2 percent of sales, a 30 basis-point increase versus first-half 2013.

Dollar figures are converted at average exchange for the period to which they refer.

“L’Oréal delivered a solid [first half],” said Céline Pannuti, an analyst at J.P. Morgan Cazenove. “Like-for-like [results] came in a bit softer than expected, although the rebound in North America [which was up 0.9 percent] and the positive delivery in Western Europe [where sales advanced 2.8 percent] are encouraging. Despite the low visibility in the marketplace, [first-half] numbers reassured with balanced regional performance [and] a solid margin delivery….The closing of the transaction with Nestlé backs our expectations for best-in-class [earnings-per-share] growth of 13 percent in full-year 2015.”

Pannuti was referring to the deal finalized on July 8 in which L’Oréal acquired 48.5 million of its own shares from Nestlé and completed the disposal of its 50 percent ownership in Galderma to the Swiss multinational. L’Oréal said the shares it acquired were immediately canceled and will be more than 5 percent accretive on a full-year basis.

Jean-Paul Agon, company chairman and chief executive officer, reiterated the company’s ability to outperform the world’s cosmetics market in 2014 and to post another year of like-for-like sales growth, improved profitability and increased net EPS.

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