Earnings Preview: Ecolab - Analyst Blog
July 25 2011 - 11:00AM
Zacks
Leading cleaning and sanitation
products maker Ecolab Inc (ECL) is scheduled to
report its second-quarter fiscal 2011 results on July 27. The
Minnesota-based company expects adjusted earnings between 62 cents
and 64 cents a share.
Ecolab expects improved
year-over-year revenue growth in the second quarter. Adjusted gross
margin target for the quarter is roughly 50%. The current Zacks
Consensus Estimate for revenues and earnings for the second quarter
are $1,654 million and 64 cents, respectively.
With respect to earnings surprise,
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 the other two occasions. Ecolab has produced an
average positive earnings surprise 1.24% over the same period,
implying that it has beaten the Zacks Consensus Estimate by that
measure.
First-Quarter
Recap
Ecolab’s first quarter adjusted
earnings of 45 cents beat the Zacks Consensus Estimate by a penny
while exceeding the year-ago earnings of 41 cents. Profit
(attributable to Ecolab) fell 2% year over year to $93.6 million,
hit by charges associated with the company’s European restructuring
and acquisition as well as higher tax. Revenues climbed 6% to
$1,518.3 million, also beating the Zacks Consensus
Estimate.
The results were boosted by strong
performances across the company’s core U.S. Cleaning &
Sanitizing business as well as Asia-Pacific and Latin American
operations. Moreover, currency exchange translation had a favorable
impact on the results. Ecolab raised its fiscal 2011 adjusted
earnings per share guidance.
Estimate Revisions
Trend
Agreement
Estimates for the forthcoming
quarter reflect bullishness among the analysts with 5 (out of 11
analysts) having raised their forecasts over the past week and
month with no reverse movements. A similar trend applies to the
estimates for fiscal 2011 with 7 analysts (out of 14) having lifted
their estimates over the corresponding periods with none moving in
the opposite direction. The current Zacks Consensus Estimate (of 64
cents) represents an estimated 13.64% year-over-year growth.
Magnitude
The upward revisions coupled with a
strong directional consensus have led to a rise in the estimates
for the second quarter and fiscal 2011. Estimates for the second
quarter as well as fiscal 2011 have increased by a penny over the
past 7 and 30 days. The current Zacks Consensus Estimate for 2011
is $2.53, representing an estimated year-over-year growth of
13.52%.
Ecolab in Neutral
Lane
Ecolab develops and markets
products and services for the hospitality, foodservice,
institutional and industrial markets. The company offers cleaning,
sanitation, pest elimination, maintenance and repair products as
well as systems and services.
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. In this regard, we believe that
its recent decision to buy Nalco Holding Company
(NLC) is a strategic fit and highly complementary for the company,
enabling it to bolster its water management business. Moreover,
Ecolab remains committed to deliver incremental returns to
investors leveraging a solid balance sheet and healthy cash
flow.
To drive efficiency and
profitability, Ecolab is restructuring its European business. The
company expects savings from the restructuring to benefit its
second-half 2011 results, including opportunities for meaningful
margin expansion.
While we are encouraged by Ecolab’s
strong international exposure and recovery across its end-markets,
we remain concerned about aggressive 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 and its aggressive
acquisition strategy has inherent integration risks. While Ecolab
will eventually benefit from the meaningful savings to be realized
from its European restructuring program, associated expenses may
weigh on its bottom line. We are currently Neutral on the
stock.
CHURCH & DWIGHT (CHD): Free Stock Analysis Report
CLOROX CO (CLX): Free Stock Analysis Report
ECOLAB INC (ECL): Free Stock Analysis Report
NALCO HLDG CO (NLC): Free Stock Analysis Report
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