Estee Lauder Companies Inc. Files 10-Q for Period Ending December 31, 2023

TL;DR

<b>Estee Lauder Companies Inc. filed its 10-Q report for the quarter ending December 31, 2023, detailing its financial performance and position.</b>

AI Summary

ESTEE LAUDER COMPANIES INC (EL) filed a Quarterly Report (10-Q) with the SEC on February 5, 2024. The filing covers the second quarter of fiscal year 2024, ending December 31, 2023. The company's fiscal year ends on June 30. The filing is for Estee Lauder Companies Inc., with Central Index Key 0001001250. The SIC code for the company is 2844 (Perfumes, Cosmetics & Other Toilet Preparations). The filing was submitted on February 5, 2024.

Why It Matters

For investors and stakeholders tracking ESTEE LAUDER COMPANIES INC, this filing contains several important signals. This 10-Q filing provides investors with the latest quarterly financial results and operational updates for Estee Lauder Companies Inc. Understanding the details within this report is crucial for assessing the company's performance in the cosmetics and fragrance industry, including its revenue streams and asset base.

Risk Assessment

Risk Level: medium — ESTEE LAUDER COMPANIES INC shows moderate risk based on this filing. The filing is a standard quarterly report (10-Q) which typically contains detailed financial information but does not include forward-looking statements or significant strategic shifts that would indicate a higher risk level on its own.

Analyst Insight

Review the detailed financial statements and segment performance within the 10-Q to understand revenue trends and asset management for Estee Lauder Companies Inc.

Revenue Breakdown

Key Numbers

• 2023-12-31 — Report Period End Date (Conformed Period of Report)
• 2024-02-05 — Filing Date (Filed as of Date)
• 2023-07-01 — Quarter Start Date (Quarterly period start date)
• 2023-06-30 — Fiscal Year End (Fiscal Year End)

Key Players & Entities

• ESTEE LAUDER COMPANIES INC (company) — Filer name
• 0001001250 (company) — Central Index Key
• 2844 (company) — Standard Industrial Classification
• DE (company) — State of Incorporation
• New York (company) — Business Address City
• 2125724200 (company) — Business Phone

FAQ

Industry Context

Estee Lauder Companies Inc. operates in the beauty industry, focusing on skincare, makeup, fragrance, and haircare products.

Regulatory Implications

The company is subject to SEC regulations for public filings, including the requirement to submit quarterly reports (10-Q).

What Investors Should Do

1. Analyze the revenue breakdown by product category (skincare, makeup, fragrance, haircare) for the reported quarter.
2. Examine the company's asset and liability structure as of December 31, 2023.
3. Review any disclosed risk factors or management discussion and analysis for insights into operational performance.

Key Dates

• 2023-12-31: Quarter End Date — End of the reporting period for the 10-Q.
• 2024-02-05: Filing Date — Date the 10-Q was officially filed with the SEC.

Year-Over-Year Comparison

This is the 10-Q filing for the period ending December 31, 2023, following previous filings for the fiscal year.

Filing Documents

• el-20231231.htm (10-Q) — 2753KB
• el-q2fy2024xex311.htm (EX-31.1) — 9KB
• el-q2fy2024xex312.htm (EX-31.2) — 10KB
• el-q2fy2024xex321.htm (EX-32.1) — 5KB
• el-q2fy2024xex322.htm (EX-32.2) — 5KB
• 0001001250-24-000007.txt (&nbsp;) — 13253KB
• el-20231231.xsd (EX-101.SCH) — 62KB
• el-20231231_cal.xml (EX-101.CAL) — 92KB
• el-20231231_def.xml (EX-101.DEF) — 415KB
• el-20231231_lab.xml (EX-101.LAB) — 841KB
• el-20231231_pre.xml (EX-101.PRE) — 628KB
• el-20231231_htm.xml (XML) — 2889KB

Financial Information

Part I. Financial Information

Financial Statements (Unaudited)

Item 1. Financial Statements (Unaudited) Consolidated Statements of Earnings — Three and Six Months Ended December 31, 2023 and 2022 2 Consolidated Statements of Comprehensive Incom e — Three and Six Months Ended December 31, 2023 and 2022 3 Consolidated Balance Sheets — December 31, 2023 and June 30, 2023 (Audited) 4 Consolidated Statements of Cash Flows — Six Months Ended December 31, 2023 and 2022 5

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 6

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 36

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 67

Controls and Procedures

Item 4. Controls and Procedures 67

Other Information

Part II. Other Information

Legal Proceedings

Item 1. Legal Proceedings 67

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 68 I tem 5. Other Information 68

Exhibits

Item 6. Exhibits 68

Signatures

Signatures 69 Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements. THE ESTE LAUDER COMPANIES INC. CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) Three Months Ended December 31 Six Months Ended December 31 (In millions, except per share data) 2023 2022 2023 2022 Net sales $ 4,279 $ 4,620 $ 7,797 $ 8,550 Cost of sales 1,154 1,219 2,224 2,242 Gross profit 3,125 3,401 5,573 6,308 Operating expenses Selling, general and administrative 2,544 2,630 4,893 4,874 Restructuring and other charges 7 8 8 10 Impairment of other intangible assets — 207 — 207 Total operating expenses 2,551 2,845 4,901 5,091 Operating income 574 556 672 1,217 Interest expense 98 52 193 98 Interest income and investment income, net 40 26 81 41 Other components of net periodic benefit cost ( 3 ) ( 2 ) ( 5 ) ( 5 ) Earnings before income taxes 519 532 565 1,165 Provision for income taxes 195 135 205 278 Net earnings 324 397 360 887 Net earnings attributable to redeemable noncontrolling interest ( 11 ) ( 3 ) ( 16 ) ( 4 ) Net earnings attributable to The Este Lauder Companies Inc. $ 313 $ 394 $ 344 $ 883 Net earnings attributable to The Este Lauder Companies Inc. per common share Basic $ .87 $ 1.10 $ .96 $ 2.47 Diluted $ .87 $ 1.09 $ .95 $ 2.45 Weighted average common shares outstanding Basic 358.7 357.7 358.6 357.8 Diluted 360.0 360.4 360.3 360.9 See notes to consolidated financial statements. 2 Table of Contents THE ESTE LAUDER COMPANIES INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended December 31 Six Months Ended December 31 (In millions) 2023 2022 2023 2022 Net earnings $ 324 $ 397 $ 360 $ 887 Other comprehensive income (loss): Net cash flow hedge loss ( 47 ) ( 56 ) ( 28 ) ( 7 ) Cross-currency swap contract gain 14 — 14 — Retirement plan and other retiree benefit adjustments ( 1 ) — ( 2 ) — Translation adjustments 216 287 96 ( 94 ) Benefit for income taxes on components of other comprehensive income 38 26 — 7 Total other com

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 Este 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. The unaudited interim consolidated financial statements furnished reflect all normal and recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. 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, 2023. Certain prior year amounts in the notes to the consolidated financial statements have been reclassified to conform to current year presentation. 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 disc

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Concentration of Credit Risk The Company is a worldwide manufacturer, marketer and seller of skin care, makeup, fragrance and hair care products. The Company's sales subject to credit risk are made primarily to retailers in its travel retail business, department stores, specialty multi-brand retailers and perfumeries. The Company grants credit to qualified customers. While the Company does not believe it is exposed significantly to any undue concentration of credit risk at this time, it continues to monitor its customers' abilities, individually and collectively, to make timely payments. Inventory and Promotional Merchandise Inventory and promotional merchandise consists of the following: (In millions) December 31, 2023 June 30, 2023 Raw materials $ 830 $ 876 Work in process 296 362 Finished goods 1,167 1,404 Promotional merchandise 310 337 $ 2,603 $ 2,979 Property, Plant and Equipment Property, plant and equipment consists of the following: (In millions) December 31, 2023 June 30, 2023 Assets (Useful Life) Land and improvements (1) $ 74 $ 70 Buildings and improvements ( 10 to 40 years) 909 843 Machinery and equipment ( 3 to 10 years) 1,160 1,071 Computer hardware and software ( 4 to 10 years) 1,810 1,651 Furniture and fixtures ( 5 to 10 years) 140 136 Leasehold improvements 2,426 2,310 Construction in progress 726 827 7,245 6,908 Less accumulated depreciation and amortization ( 4,025 ) ( 3,729 ) $ 3,220 $ 3,179 (1) Land improvements are depreciated over a 10 year useful life. Depreciation and amortization of property, plant and equipment was $ 163 million and $ 138 million during the three months ended December 31, 2023 and 2022, respectively, and $ 325 million and $ 274 million during the six months ended December 31, 2023 and 2022, respectively. Depreciation and amortization related to the Company's manufacturing process is included in Cost of sales, and all other depreciatio

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income Taxes The effective rate for income taxes for the three and six months ended December 31, 2023 and 2022 are as follows: Three Months Ended December 31 Six Months Ended December 31 2023 2022 2023 2022 Effective rate for income taxes 37.6 % 25.4 % 36.3 % 23.9 % Basis-point change from the prior-year period 1,220 1,240 For the three months ended December 31, 2023, the increase in the effective tax rate was primarily attributable to a higher effective tax rate on the Company's foreign operations, due to the Company's geographical mix of earnings for fiscal 2024, and the unfavorable impact associated with previously issued stock-based compensation, partially offset by a decrease in state and local income taxes. For the six months ended December 31, 2023, the increase in the effective tax rate was primarily attributable to a higher effective tax rate on the Company's foreign operations, due to the Company's geographical mix of earnings for fiscal 2024, and the unfavorable impact associated with previously issued stock-based compensation. On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act, including a tax provision implementing a 15% corporate alternative minimum tax based on global adjusted financial statement income. The corporate alternative minimum tax became effective beginning with the Company's first quarter of fiscal 2024 and did not have an impact on the Company's consolidated financial statements for the three and six months ended December 31, 2023. As of December 31, 2023 and June 30, 2023, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $ 63 million. The total amount of unrecognized tax benefits at December 31, 2023 that, if recognized, would affect the effective tax rate was $ 53 million. The total gross interest and penalties accrued related to unrecognized tax benefits during the three and six months ended Decemb

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other Accrued and Noncurrent Liabilities Other accrued liabilities consist of the following: (In millions) December 31, 2023 June 30, 2023 Employee compensation $ 475 $ 546 Accrued sales incentives 447 321 Deferred revenue 370 323 Payroll and other non-income taxes 333 297 Sales return accrual 302 289 Other 1,529 1,440 $ 3,456 $ 3,216 At December 31, 2023 and June 30, 2023, total Other noncurrent liabilities of $ 1,812 million and $ 1,943 million included $ 606 million and $ 620 million of deferred tax liabilities, respectively. Recently Adopted Accounting Standards FASB ASU No. 2022-04 – Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations In September 2022, the FASB issued authoritative guidance which is intended to enhance the transparency surrounding the use of supplier finance programs. The guidance requires companies that use supplier finance programs to make annual disclosures about the program's key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. Effective for the Company – The guidance became effective for the Company's first quarter fiscal 2024 and has been applied on a retrospective basis, except for the requirement to disclose rollforward information annually which is effective prospectively for the Company beginning in fiscal 2025. Impact on consolidated financial statements – The Company has supplier financing arrangements and applied the disclosure requirements as required by the amendments. Such information is included in Supplier Finance Programs above within Note 1 – Summary of Significant Accounting

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Impact on consolidated financial statements – The Company completed its comprehensive evaluation of applying this guidance and adopted certain practical expedients for its interest rate swap agreements in the fiscal 2024 first quarter which did not have a significant impact on its consolidated financial statements. The practical expedients that were adopted permit its hedging relationships to continue without de-designation upon changes due to reference rate reform. Foreign currency forward contracts do not reference LIBOR and no practical expedients were elected but are now discounted using the Secured Overnight Financing Rate ("SOFR"). For existing lease, debt arrangements and other contracts, the Company did not adopt any ASC 848 practical expedients as it relates to these arrangements. Recently Issued Accounting Standards FASB ASU No. 2023-07 – Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures In November 2023, the FASB issued authoritative guidance to improve reportable segment disclosure requirements. Companies are required to disclose significant segment expenses by reportable segment if they are regularly provided to the chief operating decision maker (CODM). Companies are also required to disclose other segment items by reportable segment. The guidance clarifies that companies may disclose more than one measure of segment profit or loss used by the CODM, provided that at least one of the reported measures includes the segment profit or loss measure that is most consistent with U.S. GAAP measurement principles. All existing annual disclosures about segment profit or loss, as well as the new requirements, must now be provided on an interim basis. Additionally, on an annual basis, the CODM's title and position is required, as well as an explanation of how the CODM uses the reported measure(s) and other disclosures. The guidance does not change how companies identify their operating s

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 – GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill The following table presents goodwill by product category and the related change in the carrying amount: (In millions) Skin Care Makeup Fragrance Hair Care Total Balance as of June 30, 2023 Goodwill $ 1,664 $ 1,116 $ 254 $ 353 $ 3,387 Accumulated impairments ( 139 ) ( 732 ) ( 30 ) — ( 901 ) 1,525 384 224 353 2,486 Translation adjustments, goodwill 10 — 1 — 11 Translation adjustments, accumulated impairments — — — — — 10 — 1 — 11 Balance