L'Oréal Operating Profit Reaches 18.2% of Revenue

The Tip Desk · April 30, 2014 · 2 min read

The cosmetics company expanded profitability across most divisions while finalizing a strategic share buyback and divestment with Nestlé.

L'Oréal reported operating profitability of 18.2% of revenue for the first half of 2014. The cosmetics company saw profitability gains in several segments, with the Active Cosmetics Division rising from 27.7% to 28.2%. L'Oréal Luxe increased from 20.0% to 20.3%, and the Consumer Products Division rose from 20.8% to 21.1%. The Professional Products Division saw its profitability decline from 20.1% to 19.6%.

Growth trajectories varied by distribution channel. L'Oréal Luxe experienced strong growth driven by the brands Urban Decay, Kiehl’s, and Clarisonic, as well as fragrance initiatives from Lancôme and Giorgio Armani. The Active Cosmetics Division also performed strongly, supported by La Roche Posay, the recovery of Vichy, and the deployment of SkinCeuticals. Professional Products showed progressive improvement across its brands. In contrast, the Consumer Products Division was penalized by a sluggish American market and a slowdown in New Markets, though it remained solid in Western Europe.

Regional performance showed divergent trends. In Western Europe, the company maintained growth of 2.8% on a comparable basis and 2.4% on a published basis. The Africa and Middle East zone grew 14.5% on a comparable basis and 9.3% on a published basis. In North America, L'Oréal recorded 0.9% growth on a comparable basis and a decline of 4.4% on a published basis. The Asia Pacific region grew 6.6% on a comparable basis but fell 0.8% on a published basis.

Strategic shifts included a major transaction with Nestlé finalized on July 8, 2014. L'Oréal repurchased and cancelled 48,500,000 of its own shares, representing 8% of its capital, and sold its stake in Galderma to Nestlé. The company said the sale of Galderma will result in a net after-tax capital gain of approximately 2.1 billion euros in the second half. The cancellation of the shares is expected to have a full-year accretive impact of more than 5% on earnings per share.

Acquisition activity focused on expanding professional and regional footprints. L'Oréal acquired Decléor and Carita on April 30, 2014, and finalized the acquisition of Magic Holdings on April 8, 2014. The cost of these acquisitions totaled 840.6 million euros. Additionally, the company finalized the acquisition of Los Angeles-based NYX Cosmetics on July 30, 2014.

Financial indicators for the period included a net profit attributable to the group of 1,734.8 million euros, a 1.5% increase. Net earnings per share, excluding the Nestlé transaction, were 2.92 euros. The company reported a net cash position of 922 million euros as of June 30, 2014, with equity totaling 22.9 billion euros.

L'Oréal expects to outperform the market in 2014 with growth in comparable revenue, improved profitability, and an increase in net earnings per share.