Ecolab reported mixed third-quarter 2014 results. While earnings
per share were in line with our estimates, revenues missed the
mark. Earnings, however, grew 16.3% year over year buoyed by
significant sales growth, which was in turn, driven by robust
performance across all segments. Ecolab's consistent delivery of
double-digit earnings growth despite the current challenging
business environment continues to impress. Ecolab is active on the
acquisition front and continues to explore strategic expansion
opportunities to sustain growth. Though Ecolab has a significant
international presence, currency fluctuations, challenging economic
and market trends and stiff competition remain significant
headwinds. As a result, we reiterate our Neutral recommendation on
Ecolab and set a target price of $111.00.
Ecolab, founded in 1923 and headquartered in St. Paul, MN, is a
leading provider of cleaning, sanitizing, food safety and infection
prevention products and services. The company serves the
foodservice, food and beverage processing, healthcare, and
hospitality markets both in the U.S. as well as internationally.
The fiscal year at Ecolab coincides with the calendar year.
The company provides cleaning and sanitizing products and
programs. Furthermore, Ecolab's offerings include pest elimination,
maintenance and repair services. These services are enjoyed mainly
by the customers in the foodservice, food and beverage processing,
hospitality, healthcare, government and education, retail, textile
care, commercial facilities management. The company reported total
revenues of $13.3 billion in 2013.
Total revenues for nine months ended Sep 30, 2014 stood at $10.6
billion, up 9.3% year over year.
Effective from 2013, the company has reorganized its reportable
segments to take into account the Nalco merger and to support its
strategy of global growth. The company's 10 operating units have
been aggregated into 4 reportable segments. They are as
Global Industrial (34.3% of revenues in the first nine months of
FY14) consist of the Global Water, Global Food & Beverage,
Global Paper and Global Textile Care operating units.
Global Institutional (30.4%) consists of the Global
Institutional, Global Specialty and Global Healthcare operating
Global Energy (30%) consists of the Global Energy operating
Other (5.3%) consists of the Global Pest Elimination and
Equipment Care operating units.
Ecolab is currently pursuing two restructuring plans - Energy
Restructuring Plan and Combined Restructuring Plan. The Energy
Restructuring Plan was undertaken in April 2013, when the company
commenced plans to undertake restructuring and other cost-saving
actions (following the completion of the acquisition of Champion
Technologies) to realize its acquisition-related cost synergies as
well as streamline and strengthen Ecolab's position in the fast
growing global energy market. The plan includes reduction of the
combined business's current global workforce by approximately 500
positions. It also includes reduction of plant and distribution
center locations and product line optimization, as well as the
reduction of other redundant facilities. The company expects
substantial completion of the Plan in 2015.
The Combined Restructuring Plan is composed of "2011
Restructuring Plan" (undertaken in Feb 2011) and "Merger
Restructuring Plan (undertaken in Jan 2012). The "2011
Restructuring Plan involves certain restructuring activities in and
outside Europe. The "Merger Restructuring Plan" is a result of the
merger with Nalco Holding Company, where the company intends to
take restructuring actions related to the reduction of its global
workforce and optimization of its supply chain and office
facilities, including planned reductions of plant and distribution
center locations. The company expects substantial completion of the
Combined Plan at the end of 2015.
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