L'Oreal Shares Advance After First-Half Operating Profit Beats Estimates
L’Oreal SA, the world’s largest cosmetics maker, rose in Paris trading after first-half operating profit increased more than analysts estimated and margins rose to a record.
The stock climbed 2.92 euros, or 3.9 percent, to close at 78.69 euros, after earlier surging as much as 10 percent. First- half operating profit rose 21 percent to 1.67 billion euros ($2.12 billion), the Paris-based company said yesterday after markets closed, beating the 1.6 billion-euro average estimate of six analysts.
Profitability at the maker of Yves Saint Laurent mascara is improving in all regions as it reduces expenses and sells more high-margin luxury items such as Giorgio Armani scents. Operating profit as a percentage of sales widened to 17.3 percent in the first half from 15.7 percent a year earlier.
“It was a solid good quality margin beat,” Pablo Zuanic, an analyst at Liberum Capital, said in a report. “We may need to take up our profit margin assumptions for 2010.”
The cosmetics maker spent more on advertising and promotion in the first half, the investment rising by 0.45 percentage points to 30.5 percent of sales. The increase “has helped build the recent positive sales momentum in the U.S. and prevent further deterioration in western Europe,” Andrew Wood, an analyst at Sanford C. Bernstein, said today in a note. Wood has as “underperform” rating on the stock.
Profit Growth
First-half net income rose to 1.32 billion euros, or 2.23 euros a share, from 1.09 billion euros, or 1.86 euros, a year earlier. Revenue advanced to 9.67 billion euros.
“The first-half results confirm L’Oreal is emerging from the crisis,” Chief Executive Officer Jean-Paul Agon said today at a presentation in Paris. L’Oreal faces the second half with “confidence,” Agon said.
The global cosmetics market may grow 4 percent in 2010, the same as in the first half, the CEO said. Sales growth in July and August “confirms the previous trend,” he said. L’Oreal is aiming for revenue growth to outpace the market in 2010, Agon said.
L’Oreal may be debt free by the year-end and doesn’t plan to engage in share buybacks this year, Chief Financial Officer Christian Mulliez said at the presentation. Net debt totaled 1.67 billion euros as of June 30, about 300 million euros less than at the end of 2009, L’Oreal said.
To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net.
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