) adjusted earnings per share of 89 cents for the fourth quarter
of 2012 were in line with the Zacks Consensus Estimate. This
result represented a 27% jump from the year-ago earnings of 70
cents per share.
The results were within the company's guidance of 87-91 cents.
Adjusted earnings exclude tax adjustments as well as special
gains and charges.
Profit attributable to Ecolab in the reported quarter
increased 161% year over year to $231.4 million (or 77 cents per
share) due to easy year-over-year comparisons. The year-ago
quarter was hit by raw material cost inflation which adversely
For the full year, adjusted earnings of $2.98 a share were
also in line with the Zacks Consensus Estimate and well above the
year-ago earnings of $2.54.
The Minnesota-based company is still working with the U.S.
Department of Justice (DOJ) regarding certain antitrust-related
issues associated with the buyout of Champion Technologies. The
company expects to resolve these issues by the first quarter of
Revenues soared 65% (including the Nalco merger) year over
year to $3,045.8 million for the fourth quarter. On a fixed
currency basis, revenues grew 7% in comparison to the year-ago
pro forma fixed currency sales (inclusive of the Nalco
Revenues were higher than the Zacks Consensus Estimate of
$3,033 million. Growth was triggered by higher sales from Global
Energy, Latin America and worldwide Kay franchises.
For 2012, revenues climbed 74% year over year (5% on pro forma
basis) to $11,838.7 million but slightly missed the Zacks
Consensus Estimate of $11,843 million.
On a pro forma basis, revenues from the larger U.S. Cleaning
& Sanitizing segment increased 5% year over year to $749.0
million led by the Kay and Institutional businesses. On a pro
forma basis, sales from the U.S. Other Services division grew 3%
to $117.5 million in the quarter.
Revenues from Ecolab's International Cleaning, Sanitizing
& Other Services segment grew 5%, on a constant currency pro
forma basis, to $833.1 million driven by strong sales in Latin
America and Asia-Pacific and moderate growth in Europe.
Global Water sales were $536.2 million (up 3% on a constant
currency pro forma basis). Higher sales in Latin America,
Asia-Pacific and Canada along with modest improvement in Europe
led to revenue growth. Revenues from Global Paper inched up 1% to
$203.2 million, while Global Energy segment's revenues surged 18%
to $596.2 million, on a constant currency pro forma basis.
Gross margin dropped to 46.0% in the fourth quarter from 47.6%
a year ago. However, adjusted fixed currency operating income
jumped 33% in the quarter to $331.6 million. Reported operating
margin increased to 13.0% from 8.9% in the prior-year
Ecolab exited the quarter with cash and cash equivalents of
$1,157.8 million, down 37.2% from the previous-year quarter.
Long-tem debt decreased 13.3% to $5,736.1 million.
Ecolab reiterated its guidance for 2013. With the exception of
special gains and charges, Ecolab's guidance excludes the impact
of the acquisition of Champion Technologies. It anticipates 2013
adjusted EPS, excluding special gains and charges and discrete
tax items, in a range of $3.38 to $3.48, representing 13% to 17%
earnings growth. The current Zacks Consensus Estimate for 2013 is
pegged at $3.53.
Special gains and charges (including restructuring charges,
Nalco merger and integration expenses along with costs associated
with the pending Champion takeover) are expected to be roughly 35
cents a share for 2013.
For first quarter 2013, adjusted earnings are expected in a
range of 56 cents to 60 cents, up 12%-20% year over year. The
forecast is below the current Zacks Consensus Estimate of 65
Results will be negatively impacted by pension costs of 2 cent
and a share impact associated with the divestment of the Vehicle
Care unit of 1 cent as well as tough year-over-year comparisons
in the Energy business.
The company expects moderate constant currency sales growth in
the first quarter. 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 between 34% and 35%.
Further, Ecolab expects to incur extraordinary items amounting
to 20 cents per share in the first quarter, mainly related to the
Nalco merger, the pending Champion acquisition and impact of the
Venezuelan currency devaluation.
Ecolab serves the food service, food and beverage processing,
healthcare, energy, water treatment and hospitality markets both
in the U.S. as well as internationally. The company continues to
invest in strategic areas such as health care, food, water and
energy and global pest elimination to expand its business.
We are impressed with management's focus on new product
launch, sales and service force improvement, new account wins
along with better customer penetration capabilities to drive
growth in 2013 and beyond. Moreover, in an effort to leverage
margin expansion, the company continues to undertake cost-saving
measures, enhance operating performance and achieve merger
synergies from the newly acquired entities.
Although we are impressed by Ecolab's strong international
exposure, we remain cautious about aggressive competition from
the likes of
Church & Dwight
). Challenging economic and market trends in 2013 together with
unfavorable pension expenses due to lower interest rates will
likely be near-term headwinds for the company. Raw material price
inflation also remains a cause of concern.
Ecolab currently carries a Zacks Rank #3 (Hold). While we
remain on the sidelines regarding Ecolab, chem.-specialty company
) with a Zacks Rank #1 (Strong Buy) is expected to do well.
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