Paris - L’Oreal SA, the world’s largest cosmetics maker, confirmed its full-year targets after reporting a 7.7 percent increase in first-half earnings as stronger sales in emerging markets fuelled improved profitability.
Operating income climbed to 2.04-billion euros ($2.7-billion), Paris-based L’Oreal said on Thursday after markets closed, compared with the 2.03-billion-euro median estimate of eight estimates compiled by Bloomberg. The shares rose as much as 6.2 percent, the steepest intraday gain since August 2010.
Operating profit as a percentage of sales reached 17.4 percent, a record for a six-month period. The maker of Maybelline is benefiting from growth in developing regions such as Asia-Pacific and Latin America. The company this month agreed to buy Magic Holdings International Ltd., the top-selling facial-mask brand in China, where Euromonitor estimates beauty and personal-care product sales will expand 8 percent this year.
“Investors should be fairly pleased with this solid set of results,” Andrew Wood, an analyst at Sanford C. Bernstein in Singapore, said in a note to clients.
L’Oreal shares rose 4.2 percent to 127.55 euros at 9:13 a.m. The stock has risen 21 percent this year and, according to Wood, is “somewhat inflated” by speculation that the company may buy back Nestle SA’s stake of about 29 percent.
The maker of Lancome mascara has the resources “to face all options,” Chairman and Chief Executive Officer Jean-Paul Agon said in an interview with CNBC today, when asked about Nestle’s holding. “The decision is for Nestle’s board.”
L’Oreal is confident in its ability “to once again outperform the market and to achieve a further year of growth in sales, results and profitability”, Agon said in the statement.
The company said last month that global beauty-market growth is slowing to about 3.5 percent to 4 percent annually.
Profitability widened in all divisions in the first half, the company said. Margin expansion was led by gains in the consumer-products unit, whose operating profit was 20.8 percent of sales compared with 19.9 percent a year earlier.
“The mass cosmetics business had such a good margin, which is pretty exceptional in staples,” said Rahul Sharma, managing director of Neev Capital in London. Beauty is a category “where you still have some pricing power,” while L’Oreal is benefiting from its exposure to fast-growing markets, he said.
First-half sales rose 4.7 percent to 11.7-billion euros, L’Oreal reported July 16. - Bloomberg