Estee Lauder (NYSE:EL) was a big winner August 14, jumping almost 10% on strong fourth quarter and full-year revenues and earnings. CEO Fabrizio Freda continues to make over the iconic company since his hiring in March 2008 and shareholders are clearly benefiting. Although its stock isn't cheap, this is a company that's firing on all cylinders and is a welcome addition to any portfolio. Here's why.

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Transformation
Freda spent 20 years at Procter & Gamble (NYSE:PG), including more than a decade in its health and beauty care division. When he was hired as President and Chief Operating Officer in 2008, it quickly became clear that he was the man to take the 66-year-old company to the next level and was moved into the CEO role 16 months later.

Freda brought a financial discipline not seen at the company prior to his arrival. Included in the changes was a 6% reduction in headcount in 2009 that helped weed out some of the fat, while also moving creativity and innovation into the hands of the various regions. While most consumer goods companies centralized their innovation, Estee Lauder decentralized and the move has paid off ever since.

SEE: Why Innovation Is Crucial To Success In Business

Fiscal 2012 saw revenues increase 10% to $9.72 billion, with all four segments (skin care, makeup, fragrance and hair care) achieving year-over-year gains and with skin care leading the way, up 14% to $4.23 billion. More impressive still is the 20% increase in operating income to $1.37 billion with a 120 basis point increase in operating margin.

At 14.2%, it exceeded its 2012 goal of 14%, a company record. On a geographic basis, its business in Europe, the Middle East and Africa saw revenues increase 11% and operating income by 14%. In terms of operating margins, its EMEA segment was able to deliver a 70 basis point increase to 20.7% and while the region generates just 37% of overall revenue, it brings in 54% of operating profits.

SEE: Zooming In On Net Operating Income

Moving Forward
Despite a challenging global economy, Estee Lauder plans to increase its gross margin in 2013 through higher prices and a better product mix. Boosting its global advertising spend, it still expects higher operating margins (nearly 15%) through cost reductions. Its sales growth is expected to come from China and travel retail, a business that's underappreciated but exceptionally profitable. Estee Lauder's products are considered part of the prestige beauty category. In 2010, emerging markets accounted for $9 billion in sales or 14% of global prestige beauty sales.

In 2020, it expects those sales to reach $19 billion or 21% of the market. China represents a lion's share of the emerging markets business. In 2010, Chinese women spent approximately $19 per capita on beauty products compared to $229 per capita in the U.S. Even with a slowdown in China, there's plenty of room to grow. Lastly, its online sales in fiscal 2011 represented just 3.9% of its total revenue, but are growing at 30% annually. Within two years, that number could be over 5% and then some.

SEE: China Vs. The U.S.: A Race To The Top

The Bottom Line
When Freda took over as CEO in 2009, operating margins were 7%. In just three years, it's been able to double those margins and they aren't done yet. Estee Lauder's on a roll - Tuesday's news confirms it.

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

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