It pays to be pretty and it pays to be Estee Lauder Companies (NYSE: EL) as the company grows ahead of the beauty industry. The company managed to exceed analyst expectations and reported a 19 percent jump in earnings due to higher revenues in international markets. But, despite beating EPS and revenue estimates, the beauty retailer's stock shed 3.6% after the company cut its full fiscal year outlook.

Q1 Earnings Results

The 19% jump in earnings resulted in net income of $595 million from $500 million last year. And it's all due to higher revenues as net sales increased 3.9 billion which is an 11% increase $3.52 billion in the prior-year. This extraordinary result is due to the growth of the skincare segment, travel retail as well as China and other emerging markets. Excluding adjustments, net sales increased 12%.

Total reported operating income was $779 million which is a 19% increase from $652 million in the prior year. Operating income increased 20% excluding the unfavorable impact of currency translation of $4 million, restructuring as well as other charges and adjustments of $25 million which were $36 million in the prior-year period.

The increase in operating profit largely reflected higher net sales and disciplined cost management throughout the business while increasing advertising investment. Net income climbed by 19% to $595 million. Adjusted earnings increased by 19% to $1.67, or grew 20% in constant currency.

As for the balance sheet, cash and cash equivalents amounted to $2.26 billion along with the company's long-term debt to $2.89 billion. But being cautious, the company lowered its fiscal 2020 earnings guidance and guided second-quarter earnings below the Street's due to the riots in Hong Kong. And there's the impact of a strong dollar will knock off another 5 cents per share of its profit per share.

The Beauty Industry – Unlimited Opportunities

Depending on the segment, the company is facing intense competition in each field. Skincare percentage change was by far the largest with an increase of 24%. With pollution, both women and men are clearly putting more emphasis on the health of their skin, a trend the company used well. Skincare has definitely overtaken makeup and is showing no signs of slowing down.

As for makeup, there was a slight improvement of a 3% increase due to the Estee Lauder brand itself but also M?A?C, Tom Ford Beauty, and the prestigious La Mer. But, fragrance despite growth of Jo Malone London was diminished by decreases of other designer fragrances, falling 2%. Haircare decreased 5% due to lower net sales of Bumble and Bumble, with other segments dropping as much as 29% so there's definitely a need for restructuring.

Geography-wise, the American segment fell 6% but Europe, Africa and the Middle East went up 17% triggered by double digit gains in travel retail and online. Moreover, revenue from the whole Asia/Pacific region went up 24% with growth in nearly every market in the region and more than half is growing double digits but on constant currency basis. And the Asia-Pacific market is expected to reach $126.8 billion by 2020, being the second largest cosmetic market after Europe.

Competitors

Lanc?me, now owned by L'Oréal (OTC: LRLCY), the world's largest beauty company, is among Forbes' world's most valuable brands and it is among the world's seven largest beauty manufacturers. It is also a proof that not any skincare but luxury skincare is driving profits in the beauty industry. This year in fact, L'Oréal had its best sales growth in over 10 years which pushed its stock to its new high in back in February this year. And the company's CEO didn't' stop there as he further went ahead to note that beauty products are proving to be resilient against the worsening macroeconomy.

L'Oréal is taking advantage of the industry's strength by "fuelling growth" through investing across media, digital channels, and e-commerce to reach more consumers but unlike Estee Lauder, it isn't leveraging its presence in the luxury segment and transitioning away from the more ordinary cosmetics markets.

So, unlike Estee Lauder, it has many other competitors to think about like the Unilever Group (NYSE: UL), Johnson and Johnson (NYSE: JNJ), the Procter and Gamble company (NYSE: PG), etc. But the company is making serious moves in the Chinese market as it last week acquired two perfumes, boosting its fragrance division by almost 1/6 its last year size to attract Chinese customers to the enchantment of perfumes.

And there's also the Japanese Shiseido Co. Ltd (OTC: SSDOY) that generates far less revenue than both of its competitors, but it is the only that comes as far to the luxury segment. And like others, it redesigned its makeup line to appeal to younger generations. The company just acquired skincare brand Drunk Elephant that will add to the company's prestige.

And let's not forget the Parisian Christian Dior (EPA:CDI) whose share price has soared 213% in the last half decade. And there are the private and among the oldest beauty companies in the world, also proudly French-brands: Chanel and Guerlain. And everyone's going for a piece of the luxury skincare pie!

Outlook

Sales growth for the second quarter is expected to be only in the 7-8% range with the whole fiscal year 2020 also expected to be in the same range. The diluted EPS for the second quarter is expected in the range of $1.75- 1.79 and for the whole fiscal year 2020 $5.58 to $5.69. This estimation includes the unfavorable impact from currency translation.

The bottom line is that the company is seeing strong demand for its high-quality products as all four of the company's biggest brands, each with annual sales well over $1 billion, grew globally. The company expects to further grow ahead of the industry seizing more global share of the beauty market as its CEO, Fabrizio Freda proudly stated that the results reflect the agility and resiliency of the company's business model.

Considering this entire segment, it seems that those investors who are concerned about the weakening economy should perhaps consider the beauty market as even Chinese consumers showed increasing appetite for beauty products, despite the economic slowdown. But the ones who are truly booming are the "luxury beauty products".

This Publication is contributed by IAMNewswire.com

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? 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.