L’Oreal SA, the world’s largest cosmetics maker, reported a 12 percent gain in 2012 earnings and said it will buy back 500 million euros ($669 million) of shares in the first half of this year as sales outpace the market.
The shares surged the most in about 2 1/2 years after the Paris-based company reported annual operating income of 3.7 billion euros late yesterday and said it’s “well prepared” to outstrip the growth of the beauty market in 2013.
“Overall full-year results were quite strong,” Andrew Wood, an analyst at Sanford C. Bernstein with an underperform recommendation on the shares, wrote in a note. The buyback “was another positive surprise that should also be well received.”
L’Oreal ended last year with a net cash surplus of 1.58 billion euros, three times more than at the end of 2011, giving scope for further repurchases, said Alex Howson, an analyst at Jefferies International in London. Revenue rose at a faster pace than the industry last year as the company met its goal for so-called new markets such as China to become the largest source of revenue, Chief Executive Officer Jean-Paul Agon said last month.
L’Oreal rose as much as 5.6 percent in Paris trading, the steepest intraday gain since August 2010. The stock was up 4.9 percent at 113.20 euros at 10:13 a.m., the biggest gain in France’s benchmark CAC 40 Index.
The buyback will be proposed at the next shareholder meeting, the company said, along with a 15 percent increase in the dividend for the year to 2.3 euros a share.
L’Oreal may also consider acquisitions this year, Agon said in an interview with Radio Classique.
“We are facing the future with optimism and confidence,” Agon said in yesterday’s statement. “The group is thus well prepared to outperform the market in 2013, and to achieve another year of sales and profit growth.”
Operating profit for 2012 met the 3.69 billion-euro average of 20 estimates compiled by Bloomberg, boosted by slower advertising and promotional spending.
Gross profit narrowed to 70.7 percent of sales in 2012, from 71.2 percent the previous year, L’Oreal said. Howson had estimated gross margin of 71 percent. The measure was affected by the weakening of the euro against the main currencies, the consolidation of Clarisonic, a maker of sonic skincare devices, and a slight increase in customer allowances, L’Oreal said.
By contrast, operating profit as a percentage of sales widened to 16.5 percent from 16.2 percent.
Net income in the 12 months through Dec. 31 increased to 2.87 billion euros from 2.44 billion euros in 2011, the company said. Total sales advanced 10 percent to 22.5 billion euros.
Fourth-quarter revenue rose 5.3 percent, excluding acquisitions, disposals and currency shifts. A 6.2 percent gain in like-for-like sales at the luxury unit helped compensate for 2.4 percent growth at the professional-products division, its weakest business, L’Oreal said.
L’Oreal won’t discard the hairdressing business and will find ways to rejuvenate it, Agon said on a call today.
Quarterly like-for-like sales increased 8.2 percent in the new markets division, led by Africa and the Middle East. Revenue gained 7.3 percent in North America, while growth in western Europe was more muted at 1.4 percent on the same basis.
Active cosmetics, L’Oreal’s smallest unit, was its best-performing business, boosting sales 7.1 percent in the last three months of 2012. Last year was the first time the unit generated more than half its sales outside western Europe.
Sales of consumer products, the company’s largest unit, climbed 5.8 percent, while revenue at The Body Shop chain gained 4.1 percent and dermatology sales rose 0.9 percent.
L’Oreal also announced the appointment to the board of Virginie Morgon, chief investment officer of French private-equity firm Eurazeo.