Estée Lauder Cos. Inc. (NYSE:EL)

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Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

Estée Lauder Cos. Inc., effective income tax rate (EITR) reconciliation

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Provision for income taxes at statutory rate	21.00%	21.00%	21.00%	21.00%	21.00%	28.10%
State and local income taxes, net of federal tax benefit	0.30%	0.70%	0.50%	-0.10%	0.60%	0.50%
Stock-based compensation arrangements, excess tax benefits, net	-0.80%	-2.70%	-3.00%	-7.50%	-2.70%	-2.50%
Previously held equity method investment gain, DECIEM	0.00%	0.00%	-5.30%	0.00%	0.00%	0.00%
GILTI, High-Tax Exception election, adjustment for prior years	0.00%	0.00%	-1.40%	0.00%	0.00%	0.00%
Taxation of foreign operations	8.60%	1.40%	1.80%	11.00%	1.90%	-4.70%
Income tax reserve adjustments	-0.10%	0.30%	-0.20%	0.40%	0.50%	-0.50%
Nondeductible goodwill impairment charges	0.00%	0.00%	0.10%	8.00%	0.60%	0.00%
Other, net	-1.30%	0.00%	0.20%	0.70%	0.10%	-0.10%
Effective tax rate, before TCJA net income tax impact	27.70%	20.70%	13.70%	33.50%	22.00%	20.80%
TCJA net income tax impact	0.00%	0.00%	0.00%	0.00%	0.20%	22.80%
Effective tax rate	27.70%	20.70%	13.70%	33.50%	22.20%	43.60%

The effective income tax rate exhibited significant volatility between 2018 and 2023, fluctuating from a peak of 43.60% to a low of 13.70%. While the statutory rate remained constant at 21.00% from 2019 through 2023, the final effective rate deviated substantially due to various discrete tax adjustments and operational factors.

Tax Cuts and Jobs Act (TCJA) Impact: A substantial anomaly occurred in 2018, where the effective tax rate reached 43.60%. This was primarily driven by a TCJA net income tax impact of 22.80%, which more than doubled the statutory rate for that period. This impact dissipated rapidly, decreasing to 0.20% in 2019 and becoming nonexistent in subsequent years.
Volatility in Foreign Operations Taxation: The taxation of foreign operations served as a primary driver of EITR instability. This item contributed a significant increase to the tax rate in 2020 (11.00%) and 2023 (8.60%), while acting as a tax reducer in 2018 (-4.70%). This volatility suggests fluctuating tax burdens or regulatory changes across international jurisdictions.
Operational Tax Reducers: Stock-based compensation arrangements consistently provided a downward adjustment to the effective tax rate throughout the analyzed period. The most significant benefit occurred in 2020, providing a 7.50% reduction, although this benefit narrowed to 0.80% by 2023.
Non-Recurring and Special Adjustments: Specific one-time events heavily influenced the EITR in 2020 and 2021. The 2020 rate was elevated by a 8.00% increase due to nondeductible goodwill impairment charges. Conversely, the 2021 rate dropped to its period low of 13.70%, aided by a 5.30% reduction from a previously held equity method investment gain related to DECIEM and a 1.40% adjustment for GILTI High-Tax Exception elections from prior years.
Recent Rate Trajectory: Following the 2021 low, the effective tax rate has trended upward, rising from 20.70% in 2022 to 27.70% in 2023. This recent increase is primarily attributable to the rising impact of foreign operations taxation and a reduction in the tax benefits derived from stock-based compensation.

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Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

Estée Lauder Cos. Inc., components of deferred tax assets and liabilities

US$ in millions

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Compensation-related expenses	189)	203)	210)	142)	179)	161)
Inventory obsolescence and other inventory related reserves	75)	59)	72)	75)	64)	57)
Retirement benefit obligations	60)	42)	54)	71)	71)	45)
Various accruals not currently deductible	225)	269)	239)	212)	206)	175)
Net operating loss, credit and other carryforwards	225)	192)	169)	98)	41)	48)
Unrecognized state tax benefits and accrued interest	12)	13)	12)	12)	12)	12)
Lease liabilities	479)	504)	591)	585)	—)	—)
Research-related expenses	200)	—)	—)	—)	—)	—)
Other differences between tax and financial statement values	107)	26)	74)	217)	125)	55)
Deferred tax assets, gross	1,572)	1,308)	1,421)	1,412)	698)	553)
Valuation allowance for deferred tax assets	(200)	(185)	(168)	(107)	(48)	(45)
Deferred tax assets	1,372)	1,123)	1,253)	1,305)	650)	508)
Fixed assets and intangibles	(264)	(204)	(329)	(563)	(286)	(338)
ROU assets	(432)	(452)	(517)	(504)	—)	—)
Partnership interest in DECIEM	(404)	(431)	(467)	—)	—)	—)
Other differences between tax and financial statement values	(32)	(33)	(158)	(194)	(69)	(50)
Deferred tax liabilities	(1,132)	(1,120)	(1,471)	(1,261)	(355)	(388)
Net deferred tax assets (liabilities)	240)	3)	(218)	44)	295)	120)

The deferred tax profile exhibits significant volatility over the analyzed six-year period, characterized by a substantial expansion in both gross deferred tax assets and deferred tax liabilities. A marked shift in the balance sheet occurred in 2020, coinciding with the introduction of lease-related accounting components and an increase in tax-deductible reserves.

Deferred Tax Asset Trends: Gross deferred tax assets grew from 553 million dollars in 2018 to 1,572 million dollars in 2023. This growth was primarily driven by the emergence of lease liabilities, which added 585 million dollars in 2020 and remained a significant component through 2023. Additionally, net operating loss and other carryforwards showed a consistent upward trajectory, increasing from 48 million dollars in 2018 to 225 million dollars in 2023. The appearance of research-related expenses totaling 200 million dollars in 2023 further contributed to the asset base. To offset these gains, the valuation allowance for deferred tax assets expanded from 45 million dollars in 2018 to 200 million dollars in 2023, indicating a more conservative estimation of the realizability of certain tax benefits.
Deferred Tax Liability Components: Total deferred tax liabilities experienced a sharp increase, peaking at 1,471 million dollars in 2021 before moderating to 1,132 million dollars in 2023. The primary drivers of this increase were Right-of-Use (ROU) assets, which first appeared in 2020 at 504 million dollars, and a partnership interest in DECIEM, which entered the records in 2021 at 467 million dollars. Fixed assets and intangibles created a significant liability peak in 2020 at 563 million dollars, although this figure decreased to 264 million dollars by 2023, suggesting a period of accelerated depreciation or asset write-downs for tax purposes.
Net Deferred Tax Position: The net deferred tax position fluctuated between an asset and a liability state. The company maintained a net asset position from 2018 through 2020, with a peak of 295 million dollars in 2019. However, the position shifted to a net liability of 218 million dollars in 2021, largely due to the simultaneous impact of the DECIEM investment and high ROU asset liabilities. By 2023, the position recovered to a net deferred tax asset of 240 million dollars, reflecting a realignment between the growing carryforwards and the reduction in fixed asset-related liabilities.

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Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

Estée Lauder Cos. Inc., deferred tax assets and liabilities, classification

US$ in millions

		Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
	Deferred tax assets (included in Other assets)	860)	695)	631)	443)	295)	120)
	Deferred tax liabilities (included in Other noncurrent liabilities)	620)	692)	849)	399)	—)	—)

The company's deferred tax position exhibits a consistent growth trend in assets contrasted with a more volatile trajectory for liabilities. Between June 30, 2018, and June 30, 2023, deferred tax assets increased steadily each year, rising from $120 million to $860 million. This continuous accumulation suggests a growing volume of temporary differences or tax credits that will provide future economic benefits.

Deferred Tax Assets Growth: A sustained upward trajectory is observed, with assets increasing by approximately 616% over the six-year reporting period. The most significant growth phases occurred between 2019 and 2021, reflecting a steady expansion of future tax deductibility.
Deferred Tax Liabilities Volatility: Deferred tax liabilities were not recorded until June 30, 2020, appearing at $399 million. A sharp increase to a peak of $849 million was recorded by June 30, 2021, followed by a consistent decline to $620 million by June 30, 2023, indicating the reversal or settlement of taxable temporary differences.
Net Deferred Tax Position: The net position transitioned from a pure asset position in 2018 and 2019 to a net liability position in 2021, where liabilities exceeded assets by $218 million. By June 30, 2023, the position reverted to a net asset of $240 million, driven by the simultaneous increase in assets and the reduction of liabilities.

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Estée Lauder Cos. Inc., Financial Data: Reported vs. Adjusted

Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

Estée Lauder Cos. Inc., adjustments to financial statements

US$ in millions

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Adjustment to Total Assets
Total assets (as reported)	23,415)	20,910)	21,971)	17,781)	13,156)	12,567)
Less: Noncurrent deferred tax assets, net	860)	695)	631)	443)	295)	120)
Total assets (adjusted)	22,555)	20,215)	21,340)	17,338)	12,861)	12,447)
Adjustment to Total Liabilities
Total liabilities (as reported)	16,998)	14,478)	15,023)	13,819)	8,745)	7,857)
Less: Noncurrent deferred tax liabilities, net	620)	692)	849)	399)	—)	—)
Total liabilities (adjusted)	16,378)	13,786)	14,174)	13,420)	8,745)	7,857)
Adjustment to Stockholders’ Equity, The Estée Lauder Companies Inc.
Stockholders’ equity, The Estée Lauder Companies Inc. (as reported)	5,585)	5,590)	6,057)	3,935)	4,386)	4,688)
Less: Net deferred tax assets (liabilities)	240)	3)	(218)	44)	295)	120)
Stockholders’ equity, The Estée Lauder Companies Inc. (adjusted)	5,345)	5,587)	6,275)	3,891)	4,091)	4,568)
Adjustment to Net Earnings Attributable To The Estée Lauder Companies Inc.
Net earnings attributable to The Estée Lauder Companies Inc. (as reported)	1,006)	2,390)	2,870)	684)	1,785)	1,108)
Add: Deferred income tax expense (benefit)	(186)	(149)	(230)	(143)	(66)	175)
Net earnings attributable to The Estée Lauder Companies Inc. (adjusted)	820)	2,241)	2,640)	541)	1,719)	1,283)

An analysis of the financial position between 2018 and 2023 reveals a consistent divergence between reported and adjusted financial figures, resulting from the removal of deferred tax accounts. Total assets exhibited a strong upward trajectory, growing from 12,567 million USD to 23,415 million USD. Throughout this period, adjusted total assets remained systematically lower than reported assets, indicating a growing balance of deferred tax assets. The gap between reported and adjusted assets expanded steadily, from 120 million USD in 2018 to 860 million USD by 2023.

Impact on Liabilities: Reported total liabilities increased significantly over the observed period, rising from 7,857 million USD in 2018 to 16,998 million USD in 2023. While there was no difference between reported and adjusted liabilities in 2018 and 2019, a divergence emerged in 2020. From 2020 onward, adjusted liabilities were consistently lower than reported liabilities, peaking in 2021 with a difference of 849 million USD, which signifies the removal of deferred tax liabilities from the adjusted calculations.
Adjustments to Stockholders' Equity: The relationship between reported and adjusted stockholders' equity shifted over the six-year horizon. In the initial years (2018-2020), adjusted equity was lower than reported equity, reflecting the dominant impact of deferred tax asset removal. However, in 2021, a reversal occurred where adjusted equity exceeded reported equity by 218 million USD, suggesting that the removal of deferred tax liabilities outweighed the removal of deferred tax assets during that fiscal year. By 2023, reported equity of 5,585 million USD was adjusted downward to 5,345 million USD.
Net Earnings Variability: Net earnings attributable to the company showed significant volatility, peaking in 2021 at 2,870 million USD before declining to 1,006 million USD in 2023. The adjustments for deferred taxes created inconsistent impacts on the bottom line. In 2018, adjusted net earnings were higher than reported earnings (1,283 million USD versus 1,108 million USD). Conversely, in the most recent years, specifically 2021 through 2023, adjusted net earnings were lower than reported figures, indicating that deferred tax adjustments had a negative impact on the adjusted profitability metrics in the latter part of the period.

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Estée Lauder Cos. Inc., Financial Ratios: Reported vs. Adjusted

Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

Estée Lauder Cos. Inc., adjusted financial ratios

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Net Profit Margin
Reported net profit margin	6.32%	13.47%	17.70%	4.79%	12.01%	8.10%
Adjusted net profit margin	5.15%	12.63%	16.28%	3.78%	11.57%	9.38%
Total Asset Turnover
Reported total asset turnover	0.68	0.85	0.74	0.80	1.13	1.09
Adjusted total asset turnover	0.71	0.88	0.76	0.82	1.16	1.10
Financial Leverage
Reported financial leverage	4.19	3.74	3.63	4.52	3.00	2.68
Adjusted financial leverage	4.22	3.62	3.40	4.46	3.14	2.72
Return on Equity (ROE)
Reported ROE	18.01%	42.75%	47.38%	17.38%	40.70%	23.63%
Adjusted ROE	15.34%	40.11%	42.07%	13.90%	42.02%	28.09%
Return on Assets (ROA)
Reported ROA	4.30%	11.43%	13.06%	3.85%	13.57%	8.82%
Adjusted ROA	3.64%	11.09%	12.37%	3.12%	13.37%	10.31%

The analysis of financial performance from 2018 to 2023 reveals significant volatility in profitability and a structural shift in asset efficiency and financial leverage. The removal of deferred taxes to calculate adjusted ratios highlights a divergence between reported accounting profits and adjusted operational performance, particularly in the later years of the period.

Profitability and Margin Analysis: Net profit margins exhibited substantial fluctuations, peaking in 2021 at 17.70% before declining to 6.32% by 2023. A comparative analysis shows that while adjusted net profit margins were higher than reported margins in 2018, a reversal occurred from 2020 onward. In 2023, the adjusted net profit margin of 5.15% was lower than the reported 6.32%, suggesting that deferred tax considerations provided a positive cushion to reported earnings in the most recent fiscal year.
Asset Efficiency and Turnover: A consistent downward trend is observed in total asset turnover. Reported turnover declined from 1.09 in 2018 to 0.68 in 2023. Adjusted figures consistently track slightly higher than reported values, but they fail to offset the overall decline in efficiency, indicating a decreasing ability to generate revenue per unit of assets held.
Financial Leverage and Solvency: Financial leverage has increased over the analyzed period, rising from a reported 2.68 in 2018 to 4.19 in 2023. A notable spike occurred in 2020, reaching 4.52. The variance between reported and adjusted leverage remains minimal, indicating that the removal of deferred taxes has a negligible impact on the perceived solvency and capital structure of the organization compared to its impact on profitability ratios.
Return on Equity (ROE) and Return on Assets (ROA): Return metrics demonstrate extreme volatility, mirroring the trends seen in net profit margins. Reported ROE peaked at 47.38% in 2021 but fell sharply to 18.01% by 2023. The adjusted ROE reveals a more conservative performance profile in recent years; for instance, the 2023 adjusted ROE of 15.34% is lower than the reported figure. Similarly, ROA followed a cyclical pattern, with both reported and adjusted figures dropping significantly in 2020 and 2023, reflecting the combined pressure of declining margins and reduced asset turnover.

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Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
As Reported
Selected Financial Data (US$ in millions)
Net earnings attributable to The Estée Lauder Companies Inc.	1,006)	2,390)	2,870)	684)	1,785)	1,108)
Net sales	15,910)	17,737)	16,215)	14,294)	14,863)	13,683)
Profitability Ratio
Net profit margin¹	6.32%	13.47%	17.70%	4.79%	12.01%	8.10%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings attributable to The Estée Lauder Companies Inc.	820)	2,241)	2,640)	541)	1,719)	1,283)
Net sales	15,910)	17,737)	16,215)	14,294)	14,863)	13,683)
Profitability Ratio
Adjusted net profit margin²	5.15%	12.63%	16.28%	3.78%	11.57%	9.38%

2023 Calculations

¹ Net profit margin = 100 × Net earnings attributable to The Estée Lauder Companies Inc. ÷ Net sales
= 100 × 1,006 ÷ 15,910 = 6.32%

² Adjusted net profit margin = 100 × Adjusted net earnings attributable to The Estée Lauder Companies Inc. ÷ Net sales
= 100 × 820 ÷ 15,910 = 5.15%

The overall profitability trajectory from June 2018 to June 2023 demonstrates significant volatility, marked by a severe contraction in 2020, a sharp recovery peaking in 2021, and a subsequent downward trend through 2023.

Net Earnings Volatility: Reported net earnings experienced substantial fluctuations, starting at 1,108 million USD in 2018 and peaking at 2,870 million USD in 2021. A significant trough occurred in 2020, where earnings fell to 684 million USD. By June 2023, reported earnings declined to 1,006 million USD, indicating a return to levels similar to those seen five years prior.
Adjusted Net Profit Margin Performance: The adjusted net profit margin followed a cyclical pattern, moving from 9.38% in 2018 to a period low of 3.78% in 2020. A rapid expansion followed, reaching a peak of 16.28% in 2021. However, a consistent decline is observed in the final two years, with the margin falling to 12.63% in 2022 and further contracting to 5.15% in 2023, representing the lowest adjusted margin in the recorded period.
Analysis of Reported versus Adjusted Variances: A shift in the relationship between reported and adjusted metrics is evident. In 2018, the adjusted net profit margin was higher than the reported margin, suggesting the presence of non-recurring costs that negatively impacted reported results. In contrast, from 2021 through 2023, reported margins consistently exceeded adjusted margins. This indicates that reported net earnings were supported by items that were excluded from the adjusted calculations, effectively inflating the reported profitability relative to the adjusted baseline.

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Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
As Reported
Selected Financial Data (US$ in millions)
Net sales	15,910)	17,737)	16,215)	14,294)	14,863)	13,683)
Total assets	23,415)	20,910)	21,971)	17,781)	13,156)	12,567)
Activity Ratio
Total asset turnover¹	0.68	0.85	0.74	0.80	1.13	1.09
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Net sales	15,910)	17,737)	16,215)	14,294)	14,863)	13,683)
Adjusted total assets	22,555)	20,215)	21,340)	17,338)	12,861)	12,447)
Activity Ratio
Adjusted total asset turnover²	0.71	0.88	0.76	0.82	1.16	1.10

2023 Calculations

¹ Total asset turnover = Net sales ÷ Total assets
= 15,910 ÷ 23,415 = 0.68

² Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 15,910 ÷ 22,555 = 0.71

An analysis of the asset base and corresponding turnover ratios between June 30, 2018, and June 30, 2023, reveals a period of significant asset expansion accompanied by a general decline in asset utilization efficiency.

Total Asset Expansion: Reported total assets grew from 12,567 million US dollars in 2018 to 23,415 million US dollars in 2023, representing a substantial increase in the company's resource base. Adjusted total assets followed a nearly identical trajectory, rising from 12,447 million US dollars to 22,555 million US dollars over the same period. The most rapid growth occurred between 2019 and 2021, where assets increased by approximately 67%.
Asset Turnover Trend: The total asset turnover ratio exhibits an inverse relationship with asset growth. Both reported and adjusted ratios peaked in 2019 at 1.13 and 1.16, respectively, before entering a period of volatility and overall decline. A sharp contraction is observed in 2020 and 2021, with the adjusted ratio falling to 0.76 by 2021. Although a partial recovery occurred in 2022, reaching an adjusted ratio of 0.88, the trend reversed in 2023, resulting in a period low of 0.68 for reported turnover and 0.71 for adjusted turnover.
Reported versus Adjusted Metrics: The adjusted total asset turnover consistently remains higher than the reported turnover across all six years. This indicates that the adjustments made to the asset base effectively remove certain non-productive or non-operating assets, thereby presenting a slightly more favorable view of the company's operational efficiency in generating revenue from its core assets.

The overall trajectory suggests that while the company has aggressively expanded its asset base, the growth in revenue has not kept pace with this expansion. The decline in the turnover ratio from 2019 to 2023 indicates a diminishing ability to generate sales per unit of asset investment, with the efficiency levels in 2023 being significantly lower than those observed at the start of the analyzed period.

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Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
As Reported
Selected Financial Data (US$ in millions)
Total assets	23,415)	20,910)	21,971)	17,781)	13,156)	12,567)
Stockholders’ equity, The Estée Lauder Companies Inc.	5,585)	5,590)	6,057)	3,935)	4,386)	4,688)
Solvency Ratio
Financial leverage¹	4.19	3.74	3.63	4.52	3.00	2.68
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets	22,555)	20,215)	21,340)	17,338)	12,861)	12,447)
Adjusted stockholders’ equity, The Estée Lauder Companies Inc.	5,345)	5,587)	6,275)	3,891)	4,091)	4,568)
Solvency Ratio
Adjusted financial leverage²	4.22	3.62	3.40	4.46	3.14	2.72

2023 Calculations

¹ Financial leverage = Total assets ÷ Stockholders’ equity, The Estée Lauder Companies Inc.
= 23,415 ÷ 5,585 = 4.19

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity, The Estée Lauder Companies Inc.
= 22,555 ÷ 5,345 = 4.22

The analysis of the financial structure reveals a period of substantial expansion in total assets coupled with fluctuating levels of stockholders' equity, resulting in notable volatility in financial leverage ratios between 2018 and 2023.

Asset Growth Trends: Adjusted total assets exhibited a consistent upward trajectory, increasing from US$ 12,447 million in 2018 to US$ 22,555 million in 2023. A period of rapid expansion is observed between 2019 and 2021, during which assets grew from US$ 12,861 million to US$ 21,340 million, indicating a significant increase in the company's asset base.
Equity Dynamics: Adjusted stockholders' equity experienced a downward trend from 2018 to 2020, declining from US$ 4,568 million to a period low of US$ 3,891 million. This was followed by a sharp increase in 2021 to US$ 6,275 million. Subsequently, a gradual contraction occurred over the following two years, with equity ending at US$ 5,345 million in 2023.
Adjusted Financial Leverage Analysis: The adjusted financial leverage ratio demonstrated significant volatility, mirroring the inverse relationship between asset growth and equity fluctuations. The ratio rose from 2.72 in 2018 to a peak of 4.46 in 2020, driven by the simultaneous increase in assets and decrease in equity. A corrective decline to 3.40 was observed in 2021, coinciding with the surge in stockholders' equity. However, the ratio trended upward again in the final two years, reaching 4.22 by June 30, 2023.
Comparison of Reported and Adjusted Metrics: The divergence between reported and adjusted financial leverage remained minimal throughout the period. In 2020 and 2021, reported leverage was slightly higher than the adjusted figure (4.52 vs 4.46 and 3.63 vs 3.40, respectively). By 2023, this trend reversed slightly, with the adjusted leverage ratio of 4.22 exceeding the reported ratio of 4.19, suggesting that the adjustments provide a marginally different but consistent view of the company's leverage profile.

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Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
As Reported
Selected Financial Data (US$ in millions)
Net earnings attributable to The Estée Lauder Companies Inc.	1,006)	2,390)	2,870)	684)	1,785)	1,108)
Stockholders’ equity, The Estée Lauder Companies Inc.	5,585)	5,590)	6,057)	3,935)	4,386)	4,688)
Profitability Ratio
ROE¹	18.01%	42.75%	47.38%	17.38%	40.70%	23.63%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings attributable to The Estée Lauder Companies Inc.	820)	2,241)	2,640)	541)	1,719)	1,283)
Adjusted stockholders’ equity, The Estée Lauder Companies Inc.	5,345)	5,587)	6,275)	3,891)	4,091)	4,568)
Profitability Ratio
Adjusted ROE²	15.34%	40.11%	42.07%	13.90%	42.02%	28.09%

2023 Calculations

¹ ROE = 100 × Net earnings attributable to The Estée Lauder Companies Inc. ÷ Stockholders’ equity, The Estée Lauder Companies Inc.
= 100 × 1,006 ÷ 5,585 = 18.01%

² Adjusted ROE = 100 × Adjusted net earnings attributable to The Estée Lauder Companies Inc. ÷ Adjusted stockholders’ equity, The Estée Lauder Companies Inc.
= 100 × 820 ÷ 5,345 = 15.34%

The financial performance from 2018 to 2023 is characterized by significant volatility in net earnings and return on equity (ROE), reflecting a cyclical trend with sharp contractions followed by periods of rapid recovery.

Net Earnings Volatility: Adjusted net earnings experienced substantial fluctuations, rising from US$ 1,283 million in 2018 to a peak of US$ 2,640 million in 2021. A severe contraction is observed in 2020, where adjusted earnings fell to US$ 541 million, followed by another marked decline to US$ 820 million by June 30, 2023. These earnings swings are the primary drivers of the volatility seen in the return metrics.
Stockholders' Equity Trends: Adjusted stockholders' equity exhibited a non-linear trajectory, declining from US$ 4,568 million in 2018 to a low of US$ 3,891 million in 2020. A significant expansion occurred in 2021, with equity reaching US$ 6,275 million, before moderating to US$ 5,345 million in 2023. The increase in the equity base since 2020 has necessitated higher net earnings to maintain previous ROE levels.
Adjusted Return on Equity (ROE) Analysis: Adjusted ROE demonstrated extreme variance, peaking at 42.07% in 2021 and 42.02% in 2019. The lowest performance was recorded in 2020 at 13.90%, followed by a second significant downturn to 15.34% in 2023. The correlation between adjusted net earnings and adjusted ROE is strong, as the percentage drops in 2020 and 2023 mirror the declines in net profitability.
Comparison Between Reported and Adjusted Metrics: A divergence between reported and adjusted ROE is evident throughout the period. In the early years (2018-2019), adjusted ROE was higher than reported ROE. However, during the trough of 2020 and the decline in 2023, adjusted ROE fell below the reported ROE, suggesting that the adjustments applied to net earnings and equity had a more pronounced negative impact during periods of financial contraction.

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Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
As Reported
Selected Financial Data (US$ in millions)
Net earnings attributable to The Estée Lauder Companies Inc.	1,006)	2,390)	2,870)	684)	1,785)	1,108)
Total assets	23,415)	20,910)	21,971)	17,781)	13,156)	12,567)
Profitability Ratio
ROA¹	4.30%	11.43%	13.06%	3.85%	13.57%	8.82%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings attributable to The Estée Lauder Companies Inc.	820)	2,241)	2,640)	541)	1,719)	1,283)
Adjusted total assets	22,555)	20,215)	21,340)	17,338)	12,861)	12,447)
Profitability Ratio
Adjusted ROA²	3.64%	11.09%	12.37%	3.12%	13.37%	10.31%

2023 Calculations

¹ ROA = 100 × Net earnings attributable to The Estée Lauder Companies Inc. ÷ Total assets
= 100 × 1,006 ÷ 23,415 = 4.30%

² Adjusted ROA = 100 × Adjusted net earnings attributable to The Estée Lauder Companies Inc. ÷ Adjusted total assets
= 100 × 820 ÷ 22,555 = 3.64%

The financial performance from 2018 to 2023 is characterized by significant volatility in earnings and a substantial expansion of the asset base, leading to fluctuations in asset utilization efficiency.

Asset Base Expansion: A consistent upward trajectory in adjusted total assets is observed, increasing from 12,447 million US$ in 2018 to 22,555 million US$ by 2023. The most pronounced growth occurred between 2019 and 2021, where assets grew from 12,861 million US$ to 21,340 million US$, representing a significant expansion of the company's resource base over a short period.
Adjusted Net Earnings Volatility: Adjusted net earnings exhibited extreme variance over the six-year period. Following an increase to 1,719 million US$ in 2019, earnings dropped sharply to 541 million US$ in 2020. A strong recovery followed in 2021, reaching a peak of 2,640 million US$, before declining sequentially to 2,241 million US$ in 2022 and further dropping to 820 million US$ in 2023.
Adjusted Return on Assets (ROA) Trends: The Adjusted ROA mirrored the instability of net earnings, showing a cyclical pattern. The ratio rose from 10.31% in 2018 to a peak of 13.37% in 2019, followed by a steep decline to 3.12% in 2020. While efficiency recovered to 12.37% in 2021 and remained relatively stable at 11.09% in 2022, it contracted sharply to 3.64% by June 30, 2023.

The divergence between the steady growth of the adjusted asset base and the erratic nature of adjusted net earnings has resulted in a diminished ROA by the end of the period. The sharp decline in 2023 indicates a significant reduction in the ability of the company's expanded asset base to generate proportional adjusted net income compared to the 2019 and 2021 peaks.

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