Ecolab
's (
ECL
) fourth-quarter fiscal 2011 adjusted earnings per share of 70
cents matched the Zacks Consensus Estimate. Profit tumbled 32% year
over year as double-digit growth in sales was masked by charges
associated with the company's $8.3 billion acquisition of
Illinois-based water treatment company Nalco Holding and
restructuring program.
Highlights from the Quarter
Net sales surged roughly 17% year over year to a record $1,845.3
million, yet missed the Zacks Consensus Estimate of $1,934 million.
Sales were boosted by the company's Food & Beverage and Kay
businesses coupled with the contributions from the Latin American
operation and Nalco acquisition.
Gross margin fell year over year on account of inventory step-up
cost associated with the Nalco buyout while operating margin was
hit by the hefty restructuring and acquisition-related charges.
The Minnesota-based company reaffirmed its earnings forecast for
fiscal 2012 and initiated guidance for the first quarter which was
below the Zacks Consensus Estimate.
We have discussed the quarterly results at length here:
Ecolab's EPS Meets, Sales Lag.
Agreement - Estimate Revisions
Estimate for fiscal 2012 is evenly balanced with 2 analysts (out
of 15) having lowered their forecasts over the past month with a
couple of positive revisions. Over the past week, there were 2
positive revisions accompanied by a single downward movement.
Estimate for first-quarter 2012 elicit a comprehensive downward
drift with 5 analysts (out of 11) having slashed their forecasts
over the last week and month with none moving in the opposite
direction over these periods.
Estimates for fiscal 2013 are inclined towards the negative side
with 4 analysts (out of 12) having trimmed their projections over
the last 7 and 30 days with just one raising his/her forecast over
these timelines.
Magnitude - Consensus Estimate Trend
Given the lack of directional pressure, estimate for fiscal 2012
has remained static (at $3.02) over the last 7 and 30 days.
However, due to the downward revisions, estimates for first-quarter
2012 and fiscal 2013 have been reduced by 6 cents each over the
past week and month.
Our Take
Ecolab leads in cleaning, sanitizing, pest elimination and food
safety solutions with annual sales of roughly $6.8 billion. The
company is investing in strategic areas such as product innovation
and sales organization while rationalizing operating costs to
enhance margins.
We believe that Ecolab's strong international presence will
continue to boost its growth in the upcoming reporting periods,
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.
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, has been
projected to fetch annual cost saving of more than $120
million.
Ecolab is also employing appropriate pricing strategy to offset
higher delivered product costs. Moreover, the company remains
committed to delivering incremental returns to investors leveraging
a solid balance sheet and healthy cash flows.
Ecolab expects profit in the first quarter and fiscal 2012 to be
boosted by higher sales volume, pricing, margin leverage, new
products as well as synergies from acquisitions and
restructuring.
However, we remain cautious 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
).
Moreover, raw material costs are expected to remain a headwind
moving ahead. We are also aware of the dilutive impact of the
restructuring expenses on the company's bottom line. The company's
back-to-back acquisitions could also lead to substantial
integration risk. As such, we remain Neutral on the stock, which is
backed by a short-term Zacks #3 Rank (Hold).
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These "Earnings Estimate Scorecard" articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at
http://www.zacks.com/education/
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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