) earnings per share (excluding special gains and charges and
discrete tax items) of $1.04 for the third quarter of 2013 were 3
cents ahead of the Zacks Consensus Estimate. It represented a 20%
surge from the year-ago earnings of 87 cents per share on the
back of solid top-line growth, cost efficiency programs and
synergies as well as improved margins in Europe.
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Earnings were within the company's previously announced guidance
of $1.00-$1.05 per share. Net income attributable to Ecolab in
the reported quarter increased to $308.0 million or $1.00 per
share from $238 million or 80 cents per share in the year-ago
Revenues grew 15% to $3,484.0 million in the quarter, slightly
missing the Zacks Consensus Estimate of $3,543 million. Ecolab's
acquisition-adjusted fixed currency revenues increased 5% in the
third quarter, driven by strong sales in Global Specialty and
Global Energy businesses. On a geographic basis, the company
garnered significant revenues from the Latin American region.
Gross margin decreased 50 basis points (bps) to 46.0% in the
third quarter. Selling, general and administrative expenses
(SG&A) increased 12.0% to $1,097.4 million. However, adjusted
operating margin improved 30 bps to 14.6%. At CER, adjusted
operating margin rose 40 bps to 14.7%.
In the third quarter, ECL shifted intangible asset amortization
specific to the Champion transaction from the Corporate segment
to the Global Energy reportable segment. This shift resulted in
$14 million of amortization expense moving from the former to the
latter. No other segments were impacted by this change.
Revenues from Global Industrial segment grew 3% to $1,261.1
million driven by strong sales in the Global Food & Beverage
and Global Paper businesses. Sales growth was solid in Latin
America and Asia-Pacific, while North America posted moderate
gains. However, sales in Europe, the Middle East and Africa
(EMEA) declined in the reported quarter.
Revenues from the Global Institutional segment increased 5% to
$1,099.2 million on the back of healthy Global Specialty and
Global Healthcare sales. Regionally, North America and Latin
America generated strong sales, with modest growth in Asia
Pacific. This was partially offset by soft sales in the EMEA
The Global Energy segment posted solid revenues of $990.6
million, which grew 68% year over year. Acquisition-adjusted
fixed currency revenues increased 9%, as growth in the upstream
and downstream markets was partially offset by comparison to a
strong quarter last year, which included significant non-annuity
Revenues from the Other segment dropped 3% to $185.0 million.
After adjusting for the divestment of Vehicle Care in the fourth
quarter of 2012, fixed currency sales in the third quarter
increased 6%. The upside was driven by gains from Global Pest
Elimination and Equipment Care businesses.
Ecolab exited the third quarter with cash and cash equivalents of
$394.4 million, up 21.7% from $324.0 million as of Sep 30, 2012.
Long-tem debt increased 21.4% to $6,537.3 million from $5,386.7
as of Sep 30, 2012.
Ecolab narrowed its 2013 adjusted EPS guidance to the range of
$3.51−$3.55 from the earlier guidance of $3.48−$3.56,
representing 18−19% (earlier 17-19%) earnings growth. The current
Zacks Consensus Estimate for 2013 is pegged at $3.53, which lies
within the guided range.
Special gains and charges (including restructuring charges,
integration expenses along with costs associated with the
Venezuelan devaluation charge and discrete tax items) are
expected to be roughly 35 cents (earlier 45 cents) a share for
For fourth-quarter 2013, adjusted earnings are expected in the
range of $1.01-$1.05 per share, up 13% to 18% year over year. The
current Zacks Consensus Estimate of $1.04 lies closer to the
higher end of the predicted range.
ECL reiterated its anticipation for full year adjusted gross
margin and SG&A expenses. Adjusted gross margin is expected
to be roughly 46% and SG&A, as a percentage of sales, is
anticipated to be roughly between 31% and 32%.
Further, Ecolab expects to incur extraordinary items amounting to
8 cents per share in the fourth quarter, mainly related to
special gains and charges along with integration charges and
This was the third consecutive quarter in which Ecolab's revenues
missed the Zacks Consensus Estimate, despite growing at a double
digit rate. However, we note that the company managed to maintain
its bottom-line growth. In addition, improvement in operating
margin further reinstates our confidence in management's ability
to leverage operational efficiency.
With a background of robust growth, ECL is poised to gain
momentum via its aggressive strategy of pursuing acquisitions.
Although we are impressed by Ecolab's strong international
exposure, we remain cautious about aggressive competition.
Challenging economic and market trends in 2013 together with
unfavorable internal issues will likely act as 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, chemical specialty companies
Globe Specialty Metals, Inc.
), both carrying a Zacks Rank #1 (Strong Buy) are expected to do
CHINA BLUECHIP ADR
) from the basic material sector with a Zacks Rank #1 (Strong
Buy) is also noteworthy.