Byline: Evan Clark

NEW YORK — The Estee Lauder Cos. Inc. met second-quarter earnings estimates, but saw softness in the fragrance category and was “cautious” about the second half, due to the trying U.S. retail market and the weakened euro.
Procter & Gamble Co. also felt euro’s sting during its second quarter, but was able to beat Wall Street’s estimates by a penny before special charges.
Lauder’s net income for the quarter rose to $127.3 million, or 50 cents a diluted share, an 11.8 percent improvement over a year ago and in line with Wall Street’s earnings per share estimates. During the year-ago quarter, the company saw earnings of $113.9 million, or 45 cents.
Sales for the period ended Dec. 31 increased 4.6 percent, to $1.29 billion against $1.24 billion a year ago. Excluding the negative effects of foreign currency translation, primarily from the weakness of the euro, net sales were up 10 percent.
Shares of the company fell $1.55, to $38.90, Tuesday in trading on the New York Stock Exchange.
Fred Langhammer, president and chief executive officer, noted in a statement: “Despite a U.S. retail environment that was not exactly buoyant this holiday season, each of our brands continued to attract a wide consumer base throughout the world. Our business in Europe and Asia was strong, lending credibility to one of our unique characteristics, geographic balance.”
The Americas region saw sales for the quarter increase 4 percent, to $747.1 million compared to a year ago. Higher sales in the company’s makeup, skin care and hair care categories were partially offset by weaker fragrance sales. Strong performers in the region included new brands, particularly Origins and MAC. The top line was also given a boost from the company’s June acquisition of Bumble and Bumble.
On a conference call Tuesday, Langhammer said he expects the third quarter in this region to be stronger than the last, but noted that “it’s going to be a mixed bag.”
Sales in Europe, the Mideast and Africa increased 5 percent, to $366.9 million. On a local-currency basis, sales in the regions increased 19 percent over a year ago on double-digit growth in the U.K., Spain, Germany and Switzerland.
Langhammer described the company’s business in these regions as “extremely buoyant.”
In the Asia-Pacific region, sales gained 6 percent, to $177.6 million, for the period, while sales on a local-currency basis increased 13 percent. The growth came from particularly strong performances in Korea, Australia, Taiwan and Hong Kong, according to the company. Japan, which grew “modestly,” was the only country in the region not to post double-digit sales increases. Langhammer said the country remains a “difficult” market.
Fragrances were, by far, Lauder’s weakest product category during the quarter. Fragrance sales for the firm fell 9 percent, to $396.9 million, compared to a year ago. On a constant-dollar basis, fragrance sales dipped 4 percent.
“Although the fragrance category was expected to be the slowest grower this quarter, the results are less than the company anticipated due to the overall softness of the fragrance business in the 2000 holiday season,” said the statement.
In addition to tough comparisons — year-over-year sales increased 17 percent last year — Tommy Hilfiger fragrances continued to be weak.
“The decline in fragrance sales occurred in the United States, while fragrance sales increased in Europe on a constant-currency basis due primarily to the launch of Intuition,” said the statement.
While it expects the performance of the Tommy Hilfiger fragrance and some of its traditional brands to erode somewhat in the coming quarters, the company is pinning its fragrance hopes for the second half on the continuing launch of Intuition, slated to make its debut in the U.S. during the latter half of 2001.
Net sales of makeup products picked up 13 percent over a year ago, rising to $420.5 million. Skin care sales for the quarter rose 9 percent, to $423.2 million against year-ago levels. The recent launches of Equalizer Smart Makeup, High Impact Eye Shadow and Luxe makeup propelled the increases, according to the company.
Sales of hair care products jumped 44 percent, to $43 million against a year ago. The statement said the increase was “due to the continued growth of Aveda resulting from successful product introductions and opening new retail stores, as well as the introduction of Clinique’s Simple Hair Care System.”
Hair care results include sales from the Bumble and Bumble acquisition.
The company, which currently has about 295 retail locations, expects to add about 30 more in fiscal 2001. Langhammer noted, though, that the company’s retail initiative has a limited impact on its financial results. Once the retail initiative reaches 500 units, it is expected to contribute about 5 or 6 percent of the company’s overall sales, according to the ceo.
For the first half, net income increased 11.8 percent, to $219.7 million, or 86 cents a diluted share, against $196.5 million, or 76 cents, in the year-ago period. Results were impacted negatively by a $2.2 million, or 1 cent a diluted share, charge for a change in accounting principal. Sales were up 6 percent, to $2.47 billion for the period, against $2.33 billion a year ago.
The New York-based cosmetics firm expects sales for the third quarter and full year to be up between 8 and 10 percent on a constant-currency basis. Langhammer noted that Lauder would take a “cautious” approach to estimates for the rest of the year due to the difficult market in the U.S. and the negative impact of foreign currency conversions against the dollar.
The company said it expects diluted earnings per share for the third quarter to be between 23 and 25 cents for the quarter and between $1.32 and $1.35 for the year. For 2002, Langhammer said: “We think we have the ammunition in place to get back to double-digit growth.”
The Cincinnati-based home and beauty product marketer Procter & Gamble saw its second-quarter earnings rise 6 percent, to $1.19 billion, or 84 cents a diluted share, against year-ago results of $1.13 billion, or 78 cents.
Results include a $120 million aftertax charge related to the company’s restructuring program. Excluding charges, the company posted earnings of 93 cents a diluted share, a penny above Wall Street’s estimates of 92 cents.
Sales for the period ended Dec. 31 fell 3.8 percent, to $10.18 billion from $10.59 billion a year ago. Excluding the impact of currency translation, sales were flat.
The company’s beauty care division — which includes its cosmetics, fragrances, hair care and skin care businesses — posted earnings of $286 million, a 5 percent increase over a year ago.
The division saw its sales fall 2 percent, to $1.86 billion, compared to a year ago. Procter & Gamble said the division saw 5 percent of its sales lost to the impact of currency translation.
A statement noted that, excluding this negative effect, “the net sales growth in the face of a 2 percent decline in unit volume reflects the benefit of pricing as the business extended its hair and skin care product lines.
“Notable progress was achieved in the hair care business in Latin America and earnings progress in China following challenges in the prior year.”
A.G. Lafley, chief executive, noted that, for the overall company: “Our choices to focus on big brands and leading customers, tighter cost and cash management and better consumer value are providing a solid foundation for further progress.”

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