The Estée Lauder Cos.’ share price closed up just a touch above 1 percent following a day of confusion over whether it could soon face pressure from a billionaire activist investor.
The beauty giant, whose brands include Jo Malone, Bobbi Brown, MAC, The Ordinary and most recently Tom Ford, saw its share price rise above $209 in early-morning trading after The New York Post reported Sunday that fresh from making a splash with Walt Disney Co., Nelson Peltz is considering making Lauder his next activist play. That could include pushing a sale and ousting president and chief executive officer Fabrizio Freda, according to the report.
But it soon lost some of those gains after Jim Cramer, a CNCBC host, said the report was “not true” during an appearance on the business network Monday.
“It’s a controlled stock. You’d have to have 90-year-old Mr. Lauder say that it’s for sale, but this a move that should be repealed rather quickly,” Cramer said.
The stock closed up $2.52, or 1.24 percent, to $206.01.
The Lauder family has around 84 percent of voting control and four of 17 board seats. No filings have been made through the SEC to show Peltz has bought stock, meaning that if he holds any, it would be less than 5 percent.
Neither Peltz’s Trian Fund Management nor Lauder responded to request for comment.
Nevertheless, analysts at Stifel Finance concluded that a Peltz involvement could be a win-win for Lauder shareholders.
“While we have no knowledge of discussions, should the family seek a sale, the company would generate considerable interest from strategic entities, in our view. This in part reflects its positioning as the largest pure-play global prestige beauty company with a superior collection of brands relative to most peers,” said Mark Astrachan in a note. “We also think Peltz’s potential involvement creates a win-win for EL shareholders. Should he become involved and advocate for a sale or management change, and is coupled with productivity and operational improvement, EL shares are likely to outperform.”
It also noted that Lauder’s sales growth has modestly underperformed large prestige beauty peers since 2018, with more significant underperformance since early 2022.
Last week, the beauty giant and new owner of Tom Ford once again slashed its full-year forecasts for both the top and bottom lines due to a slower-than-expected recovery in travel retail in Asia, causing the company’s share price to tumble around 18 percent to $202.70 that day.
Lauder’s overall net sales for the full year are now forecasted to decrease between 10 percent and 12 percent, greater than the previously expected 5 percent to 7 percent drop. Adjusted diluted earnings per common share are anticipated to slide between 50 percent and 51 percent, compared with the previous forecast for a 27 percent to 29 percent decline.
“As the shape of recovery from the pandemic for Asia travel retail comes into better focus, it is proving to be both far more volatile than we expected and more gradual relative to what we experienced in other regions,” Freda said Wednesday.
Lauder, which has a much bigger travel retail business than some of its competitors, saw its Asia travel retail business continue to be pressured by the slower-than-anticipated recovery from the COVID-19 pandemic, with global travel retail organic sales declining 45 percent in the third quarter, compared with a year earlier.
While there had been speculation that Freda, who has been in the top job for close to 14 years, might retire, he stressed at a banking conference last year that he is “completely committed to continue leading this company for the foreseeable future.”
According to its latest annual report, Freda’s total pay package for the fiscal year 2022 was $25.48 million, compared with $65.9 million in 2021. Some of this will be made up of stock options, the full value of which might never be realized due to fluctuations in stock prices and vesting schedules.
While his base salary increased from $1.6 million to $2.1 million, the decrease in the total package was mainly due to 50,429,620 stock awards he received in 2021.