Ecolab Inc. (ECL): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


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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 follows:

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 units.

Global Energy (30%) consists of the Global Energy operating unit.

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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