Earnings Preview: Ecolab - Analyst Blog
April 25 2011 - 11:47AM
Zacks
Leading cleaning and sanitation products maker Ecolab
Inc (ECL) is slated to release its first-quarter fiscal
2011 results on April 26. The Minnesota-based company expects
adjusted earnings between 42 cents and 45 cents a share. The
current Zacks Consensus Estimate for the quarter is 44 cents,
representing an estimated 7.32% annualized growth.
Ecolab expects sustained revenue growth at constant currency
rates. Moreover, currency exchange translation has been predicted
to favorably impact sales for the quarter. Adjusted gross margin
target for the quarter has been pegged at 49%-50%.
With respect to earnings surprises, Ecolab’s
performance has been erratic over
the preceding four quarters. The company has posted two positive
surprises over the last four quarters while it has trailed and met
the Zacks Consensus Estimates on two other
occasions. Ecolab has produced an average positive earnings
surprise of
2.19% over the same timeframe, implying that it has beat the
Zacks Consensus Estimate by that measure.
Fourth-Quarter Recap
Ecolab’s fourth-quarter fiscal 2010 adjusted earnings of 60
cents missed the Zacks Consensus Estimate by a penny. Net income
soared 13% year over year to $131.3 million owing to higher sales
from the company’s international operations and lower tax. Revenues
rose modestly to $1,575.5 million, also missing the Zacks Consensus
Estimate.
The results were once again supported by strong performances
across emerging markets accompanied by growth in global lodging and
food and beverage businesses. Ecolab’s effective cost-management
and operational efficiency contributed to operating margin
expansion. Separately, the company announced a major restructuring
plan for its European business during the earnings call.
Estimate Revisions Trend
Agreement
Estimates for the upcoming quarter reflect an absolute lack of
activity over the past week and the month. Out of 15
analysts covering the stock, none have made any revisions in either
direction over these time periods. Similarly, estimates for
fiscal 2011 have also remained stationary.
Magnitude
Given the lack of estimate revision, the magnitude of revisions
for the first quarter and fiscal 2011 has been static over the last
7 and 30 days. The current Zacks Consensus Estimate for 2011 is
$2.49, representing an estimated year-over-year growth of
11.72%.
Neutral on Ecolab
Ecolab leads in cleaning, sanitizing, pest elimination and food
safety solutions with annual sales of roughly $6 billion. The
company is investing in strategic areas such as product innovation
and sales organization while rationalizing operating costs to boost
margins.
Ecolab is also active on the acquisition front and continues to
explore opportunities to expand into emerging markets for growth.
Moreover, the company remains committed to delivering incremental
returns to investors leveraging a solid balance sheet and
healthy cash flow.
To boost efficiency and profitability, Ecolab is restructuring
its European business. As part of this move, it plans to
realign the
supply chain and trim headcount, which will eliminate roughly 900
positions. The company expects savings from the
restructuring to benefit its second-half 2011 results, including
opportunities for meaningful margin expansion.
Although we are impressed with Ecolab’s
strong international exposure, we remain concerned about intense
competition. The company’s U.S. Cleaning & Sanitizing and
International divisions face stiff competition from
Clorox (CLX) and Church &
Dwight (CHD).
Moreover, raw material price fluctuations represent
a headwind for Ecolab in first-half 2011. Its aggressive
acquisition strategy also has inherent integration risks. While
Ecolab will eventually benefit from the meaningful savings
to be realized from its European restructuring program, associated
hefty expenses may be a drag on its bottom line. We are currently
Neutral on the stock, supported by a short-term Zacks #3 Rank
(Hold).
CHURCH & DWIGHT (CHD): Free Stock Analysis Report
CLOROX CO (CLX): Free Stock Analysis Report
ECOLAB INC (ECL): Free Stock Analysis Report
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