Cosmetic Stocks Earnings at Full Throttle: Focus on EL, AVP

The earnings reporting season for first-quarter 2016 (or the quarter ended Mar 31, 2016) is moving full steam ahead, with results of numerous companies scheduled again for this week. The end of last week (ended Apr 29) brought the current reporting cycle near the half-way mark with results of almost 62% of the S&P members already on board.

Per the latest Earnings Trend Report (as of Apr 29, 2016), the broader sector for the Cosmetic industry –Consumer Staples – has already seen nearly 59.4% of its members report their first-quarter results, of which 84.2% beat on earnings and 63.2% surpassed revenue estimates. Additionally, the blended beat, which is the percentage of companies that were able to beat both EPS and revenue estimates, stands at 52.6% for the sector. However, total earnings for these companies were up only 0.4% year over year, with revenues sliding 7.1%.

Looking ahead at the rest of the season, we expect to see 0.2% growth in earnings and a 4% fall in sales in first-quarter 2016.This would compare favorably with respective declines of 6.3% and 7.9% witnessed in the fourth quarter of 2015.

As we proceed this week, we have a handful of Cosmetic companies coming up with their results. The cosmetic industry, which caters to the make-up needs of people, saw a few interesting members report earnings last week. Among these were Nu Skin Enterprises Inc. NUS and Helen of Troy Limited HELE, which saw their earnings beat the respective Zacks Consensus Estimate.

That said, we will now focus on S&P cosmetic stocks Estee Lauder Inc. EL and Avon Products Inc. AVP, which are scheduled to report earnings on May 3 and May 5, respectively.

We expect the leading cosmetics maker, Estee Lauder to beat estimates when it reports earnings this quarter as it has an Earnings ESP of +1.67% and carries a Zacks Rank #2 (Buy). The company’s past performance reveals that it surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 22.4%. The company’s solid surprise history is backed by organic sales growth, product innovation and cost saving measures. The company puts great emphasis on innovation, which ensures constant revenue growth. Also, Estee Lauder made several strategic acquisitions to enhance its portfolio. We believe these actions will boost sales and earnings in the to-be reported quarter. (Read more: Estee Lauder Q3 Earnings: A Beat in the Cards?)

Coming to Avon Products, we expect another beat this week as the global beauty retailer boasts an Earnings ESP of +50.00% and carries a Zacks Rank #3 (Hold). Avon has long been grappling with currency headwinds and tough macroeconomic conditions as evident from its average negative surprise of 85.7% in the trailing four quarters. However, the company’s recently announced transformation plan to cut costs and efficiently channelize these savings toward driving growth seems to make sense. Effective implementation of this plan is likely to help Avon attain its long-term revenue and margin targets.

Also, with its offloaded North American business, Liz Earle brand divestiture and efforts to enhance IT infrastructure through a pact with Hewlett Packard Enterprise Company, Avon seems well positioned to revive its business. (Read more: Avon Stock Looking Up: Is a Beat Likely in Q1 Earnings?)

Apart from these biggies, other cosmetic stocks that will present earnings results this week include Coty Inc. COTY and Elizabeth Arden Inc. RDEN. The earnings picture for Coty, which is slated to report earnings on May 3, looks vague, as the company’s Zacks Rank #2 when combined with an Earnings ESP of -8.33% makes surprise prediction difficult. However, the company has a favorable surprise history, wherein it beat the Zacks Consensus Estimate in three of the last four quarters, boasting an average positive surprise of 30.4%.

For Elizabeth Arden as well, the prospects of the upcoming release are not bright as the company’s Earnings ESP of 0.00% when combined with the Zacks Rank #3 makes surprise prediction difficult. Also, the company saw negative earnings surprises in the trailing four quarters, averaging a negative surprise of 78.4%. The company is scheduled to release results on May 5.

All-in-all, we see two positive and two unsure earnings predictions in the cosmetics space this week. We won’t be surprised if all four deliver positive earnings surprises, as the estimates have become too conservative.

So, do check back on our full write-up on earnings releases of these stocks.

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AVON PRODS INC (AVP): Free Stock Analysis Report
 
ELIZABETH ARDEN (RDEN): Free Stock Analysis Report
 
NU SKIN ENTERP (NUS): Free Stock Analysis Report
 
HELEN OF TROY (HELE): Free Stock Analysis Report
 
ESTEE LAUDER (EL): Free Stock Analysis Report
 
COTY INC-A (COTY): Free Stock Analysis Report
 
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