Ecolab's EPS Meets, Sales Lag - Analyst Blog
February 28 2012 - 9:30AM
Zacks
Leading cleaning and sanitation
products maker Ecolab Inc’s (ECL) fourth-quarter
fiscal 2011 adjusted (excluding special gains/charges, tax-related
adjustments and the impact of Nalco Holding merger) earnings of 70
cents a share matched the Zacks Consensus Estimate and transcended
the year-ago adjusted earnings of 60 cents. The results were within
the company’s guidance of 69-71 cents.
Profit (attributable to Ecolab) for
the quarter slid 32% year over year to $88.7 million (or 34 cents a
share), hurt by charges associated with the company’s $8 billion
acquisition of Illinois-based water treatment company Nalco Holding
Company and restructuring program, which masked a double-digit
growth in revenues.
For the full year, adjusted
earnings of $2.54 a share were also in line with the Zacks
Consensus Estimate and well above the year-ago earnings of $2.23.
The Minnesota-based company has backed its earnings forecast for
fiscal 2012 and initiated guidance for the first quarter which is
below the Zacks Consensus Estimate.
Revenues
Net sales soared roughly 17% year
over year to $1,845.3 million (a record) in the fourth quarter, but
missed the Zacks Consensus Estimate of $1,934 million. For the
fiscal, revenues climbed 12% year over year to $6,798.5 million,
also trailing the Zacks Consensus Estimate of $6,869 million.
Sales in the fourth quarter were
boosted by the company’s Food & Beverage and Kay businesses
coupled with contributions from the Latin American operation and
Nalco acquisition. In constant currency (excluding special charges
and acquisitions) sales rose 4% in the quarter.
Segment
Highlights
Revenues from Ecolab’s core U.S.
Cleaning & Sanitizing division jumped 8% year over year to $733
million in the fourth quarter, led by the Food & Beverage
sub-segment. The U.S. Other Services segment revenues crept up 2%
to $114 million.
Revenues (at constant currency)
from the company’s International operations rose 6% year over year
to $816 million, primarily driven by the Latin American operation.
The company noted that one month’s revenues from Nalco’s U.S.
Water, Paper and Energy businesses clocked $193 million following
the competition of the acquisition on December 1, 2011.
Margins
Gross margin fell to 47.6% in the
fourth quarter from 50.3% a year ago, resulting from a 23% hike in
cost of sales owing to the inventory step-up cost associated with
the Nalco buyout. Operating margin declined to 8.9% from 12.9% a
year ago, hit by the lofty restructuring and acquisition-related
charges.
Financial
Health
Ecolab ended the fiscal with cash
and cash equivalents of $1,843.6 million, a roughly seven and a
half fold year-over-year increase. Long-term debt increased roughly
ten-fold year over year to $6,613.2 million.
Guidance and
Recommendation
Ecolab has retained its adjusted
earnings guidance for fiscal 2012 which is still expected in the
band of $2.95 to $3.05 a share, representing a 16%-20%
year-over-year increase. As communicated earlier, the company
expects special gains and charges of 60 cents a share for the year,
mainly associated with restructuring and Nalco merger. Analysts
polled by Zacks are currently looking for earnings of $3.02 a share
on an average for 2012.
For first-quarter 2012, Ecolab
forecast adjusted earnings between 46 cents and 49 cents a share.
The forecast assumes a dilution of roughly 30 cents a share,
associated with the Nalco acquisition. The forecast is below the
current Zacks Consensus Estimates of 54 cents.
Adjusted gross margin for the first
quarter is expected to be roughly 46%. Moreover, Ecolab expects
upper single-digit revenue growth in the quarter.
Although we are impressed by
Ecolab’s strong international exposure, we remain cautious about
aggressive competition from the likes of Clorox
(CLX) and Church & Dwight (CHD), raw material
price fluctuations and the dilutive impact of hefty
restructuring/acquisition expenses on the company’s bottom line. We
currently have a Neutral recommendation on Ecolab, which is backed
by a 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
To read this article on Zacks.com click here.
Zacks Investment Research
Ecolab (NYSE:ECL)
Historical Stock Chart
From Jul 2024 to Aug 2024
Ecolab (NYSE:ECL)
Historical Stock Chart
From Aug 2023 to Aug 2024