Earnings Preview: Ecolab - Analyst Blog
February 27 2012 - 10:00AM
Zacks
Leading cleaning and sanitation
products maker Ecolab Inc. (ECL) is scheduled to
reveal its fourth-quarter fiscal 2011 results before the opening
gong on Tuesday, February 28. The Minnesota-based company envisions
adjusted earnings between 69 cents and 71 cents a share for the
quarter.
The forecast assumes a dilution of
roughly 20 cents a share, primarily associated with merger and
integration costs related to the company’s buyout of water
treatment company Nalco Holding. Analysts polled by Zacks are
currently looking for revenues and earnings per share of $1,934
million and 70 cents, respectively, for the quarter.
With respect to earnings surprises,
Ecolab has met the Zacks Consensus Estimates in the last two
quarters while it has beaten and trailed the estimates on two other
occasions. Ecolab has produced an average positive earnings
surprise of 0.32% over the last four quarters, implying that it has
beaten the Zacks Consensus Estimate by that measure.
Third Quarter
Flashback
Ecolab’s third quarter earnings per
share of 75 cents were in line with the Zacks Consensus Estimate.
Profit fell 11% year over year as double-digit growth in sales was
eclipsed by charges associated with the company’s European
restructuring and acquisition.
Revenues for the quarter climbed
11% year over year to $1,736.1 million, matching the Zacks
Consensus Estimate. Sales were boosted by healthy growth at the
company’s Food & Beverage business coupled with contributions
from Asia-Pacific, Canada and Latin American operations.
Acquisitions and new products also aided growth.
Hefty restructuring charges
contributed to the decline in margins. The company tightened its
earnings forecast for fiscal 2011.
Estimate Revisions
Trend
Agreement
Estimates for the December quarter
elicit an absolute lack of activity with no movements in either
direction over the last week and month. An identical trend applies
for the estimates for fiscal 2011.
Magnitude
Given the lack of analyst revision,
estimates for the fourth quarter and fiscal 2011 have been
stationary over the last 7 and 30 days. The current Zacks Consensus
Estimate for 2011 is $2.54, representing an estimated
year-over-year growth of 14.01%.
Our View
Ecolab’s strong international
presence has been driving growth and we believe will continue doing
so in the December quarter, buoyed by emerging markets.
Asia-Pacific and Latin America represent the key growth engine for
the company’s overseas operations. Moreover, the uptick in hotel
lodging demand and favorable food and beverage market trends
represents healthy tailwinds.
Ecolab expects profit in the fourth
quarter to be boosted by higher sales volume, pricing, margin
leverage, new products as well as synergies from acquisitions and
European restructuring.
Management remains optimistic
regarding improvement in end-market demand, its ability to attract
new customers, and opportunities for greater customer penetration
through new product development. Ecolab is also active on the
acquisition front and continues to explore opportunities to expand
into emerging markets.
To drive efficiency and
profitability, Ecolab is restructuring its European business. The
restructuring, once completed, would fetch annual cost savings of
more than $120 million. Ecolab also remains committed to delivering
incremental returns to investors, leveraging a solid balance sheet
and healthy cash flows.
While we derive comfort from
Ecolab’s strong international exposure and recovery across its
end-markets, we remain wary about aggressive competition and the
impact of foreign exchange movements on overseas sales. The
company’s U.S. Cleaning & Sanitizing and International
divisions face stiff competition from Clorox (CLX)
and Church & Dwight (CHD).
Although Ecolab is employing
effective pricing strategies to offset raw material inflation, raw
material costs are expected to impact results in the fourth
quarter. We are also aware of the dilutive impact of the hefty
restructuring expenses on the company’s bottom line. Our Neutral
recommendation on the stock is 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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