Ecolab Beats but Profits Decline - Analyst Blog

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A global sanitation products company, Ecolab Inc. 's ( ECL ) adjusted earnings per share of 50 cents for the first quarter of 2012, beat both the Zacks Consensus Estimate of 48 cents and the year-ago earnings of 45 cents per share.

Adjusted earnings exclude tax adjustments as well as special gains and charges such as those related to the merger with Nalco. In the reported quarter, profit attributable to Ecolab fell 47% year over year to $50 million (or 17 cents per share).

Revenue


Revenues spiked 85% year over year to $2,810.9 million (a quarterly record), ahead of the Zacks Consensus Estimate of $2,718 million. Growth was triggered by Global Energy and Latin American franchises along with Food & Beverage, U.S. Institutional and Global Water segments.

Segment Analysis

Revenues from the larger U.S. Cleaning & Sanitizing segment climbed 4% year over year to $709 million driven by its Food & Beverage and Institutional sub-segments.

Sales from the U.S. Other Services division rose 4% to $111 million in the quarter. In constant currency, revenues from Ecolab's International segment increased 3% to $733 million backed by solid sales in Latin America.

Global Water sales, in terms of constant currency, were $498 million, driven by growth in metals, mining and food and beverage industries. Sales from Global Paper and Global Energy segments were $199 million and $537 million, respectively.

Margins

Gross margin dropped to 42.6% in the first quarter from 49.3% a year ago. Operating margin declined to 5.9% from 10% in the prior-year quarter.

Selling, general and administrative expenses were lower at 35.2% of sales in the first quarter of 2012 compared with 38.3% of revenue in the year-ago quarter.

Balance Sheet

Ecolab exited the quarter with cash and cash equivalents of $354 million, more than a two fold increase from the previous year. Long-tem debt increased approximately seven fold to $4,911 million.

The company repurchased $1.4 million shares in the quarter under its share buyback program.

Guidance

Ecolab reiterated its forecast of 16% to 20% increase in adjusted earnings to $2.95 and $3.05 for fiscal 2012. Special gains and restructuring charges, such as Nalco acquisition costs, are expected to be roughly in the band of 60 cents to 65 cents a share.

For second quarter 2012, adjusted earnings are expected to be in the range of 69 cents to 72 cents. Adjusted gross margin (except special gains and charges) is expected to be roughly 46% and SG&A (including purchasing accounting), as a percentage of sales, is anticipated to be roughly 33%.

The company expects to incur extraordinary items, mainly related to the Nalco merger and restructuring of operations in Europe, amounting to 10 cents in the second 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 inflation also remains a headwind.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CHD , CLX , ECL

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