Estée Lauder posts higher-than-expected quarterly profit

Estée Lauder reported higher-than-expected quarterly profit on Thursday and raised its earnings forecast, boosted by its campaign to cut costs.

The company, which makes skincare, makeup, fragrance and hair care products, also said it expects to outperform its rivals in the high-end beauty markets, where industry growth has slowed.

It said sales in China and in travel outlets such as airports had risen and it has likely won market share in China.

BMO analyst Connie Maneaty in a note said Lauder's results continue to be impressive, especially gross margin expansion, which was well above expectations.

But Lauder also reported quarterly sales slightly below Wall Street estimates, hurt by tepid demand in markets such as Southern Europe and South Korea. It said it expects full-year sales at the low end of its previous forecast.

Lauder, known for its namesake brand as well as lines such as La Mer and Bobbi Brown, reported net income of $178.8 million, or 45 cents a share, for the fiscal third quarter, ended March 31, up from $130.4 million, or 33 cents a share, a year earlier

That was 11 cents per share better than expected. Lauder in December ended a three-year program aimed at reducing its costs, included dropping unprofitable operations, outsourcing some functions and reorganizing some units.

Lauder said it expects a profit, before one-time charges, of $2.56 per share to $2.61 per share for the year ending in June, up from an earlier forecast of $2.51 to $2.59.

Third-quarter sales grew 1.9 percent to $2.29 billion, with makeup, primarily Lauder's MAC brand, showing the largest gains. Wall Street analysts were expecting $2.33 billion, according to Thomson Reuters I/B/E/S.

Sales rose in all regions and categories, including high-end fragrances such as Jo Malone and Tom Ford.

Estee Lauder said it now expects sales growth this year of 6 percent, excluding the impact of currency fluctuations, the low end of its previous forecast of 6 percent to 7 percent.

Smaller rival Elizabeth Arden also reported sales gains in the quarter, with revenue jumping 10.5 percent. The increase came from its celebrity and designer fragrances and its push into international markets.

Despite the growth, Arden, also known for products like its Prevage anti-aging creams, stood by its previous forecast for a full-year adjusted profit of $2.30 per share to $2.50 per share and a sales rise of 9 percent to 11 percent.

Arden reported a quarterly net loss of $1.3 million, or 4 cents per share, versus a profit of $2.2 million, or 7 cents per share, a year earlier. Excluding items such as expenses related to efforts to enhance its namesake brand, Arden had a profit of 2 cents per share, in line with analysts' average forecast.

SunTrust Robinson Humphrey, in a research note, said it could take several more quarters for the makeover of the Elizabeth Arden brand to have a big impact on sales.