Market Overview - Major averages have recently hit record highs, with the S&P 500 closing on over 30 records [1] - There has been a significant rally of 40% from the market's bottom, leading to cautious optimism among investors [2][5] Investment Strategy - The company has raised some cash in anticipation of potential volatility during the upcoming earnings season [3][5] - A cautious approach is being adopted, following Warren Buffett's principle of being fearful when others are greedy, especially in the current information vacuum [4][11] Earnings Outlook - Concerns are raised regarding the deceleration of earnings growth among major tech companies, with the MAG 7 expected to see earnings growth drop from 32% last year to below 15% this quarter [9][10] - Capital expenditures as a percentage of free cash flow among hyperscalers have increased to 60%, impacting earnings growth and stock buybacks [8] Stock Recommendations - Estee Lauder and Diageo are highlighted as attractive defensive stocks, with potential for significant returns over a 3 to 5-year period [12][18] - Diageo is recovering from COVID impacts, targeting $3 billion in free cash flow and experiencing growth in its non-alcoholic beverage segment [17] - Estee Lauder is returning to growth with a focus on online sales, increasing from 20% to 31% of its business, and targeting $1 to $1.1 billion in operating cash flow [19][20]

Core Insights - The Estee Lauder Companies Inc. reported third-quarter fiscal 2025 results with both net sales and earnings declining year over year, primarily due to weak consumer sentiment and reduced conversion rates in China [1][2] Financial Performance - Adjusted earnings were 65 cents per share, surpassing the Zacks Consensus Estimate of 29 cents, but down 33% from 97 cents in the prior year [2] - Quarterly net sales reached $3,550 million, exceeding the Zacks Consensus Estimate of $3,507.2 million, but reflecting a 10% decline year over year [2] - Organic net sales decreased by 9% to $3,605 million [2] Category-Wise Revenue Results - Skin Care sales fell 12% year over year to $1,807 million, impacted by weak consumer sentiment and lower conversion rates among Chinese shoppers [3] - Makeup revenues declined 9% to $1,035 million, primarily due to weaker sales from key brands like M·A·C and Estée Lauder [4] - Fragrance revenues decreased 3% to $557 million, largely due to lower performance from Clinique and Estee Lauder [4] - Hair Care sales totaled $126 million, down 12% year over year, mainly due to Aveda's weaker performance [5] Regional Revenue Results - Sales in the Americas fell 6% year over year to $1,052 million [6] - Revenues in the EMEA region declined 18% to $1,358 million [6] - Asia-Pacific region sales tumbled 3% to $1,140 million [6] Margin Analysis - Adjusted gross margin improved by 310 basis points to 75%, driven by the Profit Recovery and Growth Plan (PRGP) [7] - Adjusted operating margin contracted by 270 basis points to 11.4%, due to increased investments and sales volume deleverage [8] Financial Health - The company exited the quarter with cash and cash equivalents of $2,631 million, long-term debt of $7,298 million, and total equity of $4,345 million [9] - Net cash flow from operating activities for the nine months ended March 31, 2025, was $671 million, with capital expenditures of $395 million [10] Restructuring and Future Outlook - The PRGP aims to transform the operating model, with expected restructuring charges between $1.2 billion and $1.6 billion before taxes [12][13] - The company anticipates a decline in reported net sales of 8-9% for fiscal 2025, with adjusted organic net sales expected to fall by the same percentage [14] - Adjusted EPS is projected to slump by 40-50%, ranging from $1.30 to $1.55 for fiscal 2025 [15]