Ecolab Q4 Earnings Grow Y/Y, Miss Ests - Analyst Blog

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Ecolab Inc. 's ( ECL ) adjusted earnings per share (excluding special gains and charges) of $1.04 for the fourth quarter of 2013 rose about 17% from 89 cents in the same quarter of 2012 but missed the Zacks Consensus Estimate by a penny. Following the earnings release, shares of the company have gone up 0.3% after the market closed on Feb 21.

The rise in adjusted earnings was attributable to strong sales growth and operating margin gains owing to cost efficiency programs and synergies. Adjusted net earnings rose nearly 20% to $318.4 million from $265.9 million in the fourth quarter of 2012.

Revenues

Revenues grew 16.9% year over year (18% at constant exchange rate or CER) to $3,559.5 million. Excluding acquisitions and divestures, adjusted fixed currency revenues increased 6%. Revenues were slightly higher than the Zacks Consensus Estimate of $3,537 million.

Segment Results

At CER, revenues from Global Industrial segment grew 4.5% to $1,283.1 million driven by strong sales in the Global Food & Beverage and Global Water. Sales growth was solid in Latin America and Asia-Pacific, while the other regions posted moderate gains. Operating profit in the segment rose 4.8% to $181.6 million.

Revenues from the Global Institutional segment increased 3.7% to $1,073.7 million at CER on the back of healthy Global Specialty sales. Strong sales in Latin and North America, and moderate gains in Asia Pacific partially offset soft sales in Europe, the Middle East and Africa (EMEA). Operating profit in the segment grew 5.6% to $200.7 million.

The Global Energy segment posted solid revenue growth of 77.5% at CER to $1,062.1 million, mainly driven by the Champion acquisition. Acquisition adjusted fixed currency revenues increased 12% driven by impressive growth in the upstream and downstream markets.

Revenues from the Other segment inched up 0.6% at CER to $183 million in the 2013-fourth quarter. After adjusting for divestment of Vehicle Care in the fourth quarter of 2012, fixed currency sales in the 2013-quarter increased 6%. The upside was driven by gains from Global Pest Elimination and Equipment Care businesses. Operating profit in the segment slid 5.8% to $24.2 million. After adjusting for the sale of Vehicle Care, fixed currency operating profit declined 2% due to a deductible on an insurance claim and the write down of certain field software.

Margins

Gross margin decreased 30 basis points to 45.4% in the fourth quarter, after adjusting for acquisitions and special charges. Despite a 15.5% rise in adjusted operating profit to $510.5 million, adjusted operating margin dipped 20 bps to 14.3% in the quarter.

Full Year Results

For full year 2013, adjusted earnings per share went up 18.8% to $3.54 from $2.98 in 2012. Revenues in the year rose 11.9% to $13,253.4 million.

Balance Sheet

ECL exited the year with cash and cash equivalents of $339.2 million, significantly down by 70.7% from $1,157.8 million as of Dec 31, 2012. Total debt increased 5.5% to $6,904.5 million from $6,541.9 million as of Dec 31, 2012.

Guidance

For the first quarter of 2014, ECL expects adjusted gross margin of 46% and adjusted earnings per share of 71 to 75 cents. The Zacks Consensus Estimate of 74 cents for the quarter lies within the guided range.

For full-year 2014, ECL anticipates adjusted gross margin of 46% and higher adjusted earnings per share between $4.10 and $4.20 compared with 2013. The Zacks Consensus Estimate of $4.15 for the year lies within the guided range.

Our Take

Despite earnings missing the Zacks Consensus Estimate, we are impressed with Ecolab's fourth quarter results. We take note of the solid earnings growth in the reported quarter along with the growth-oriented outlook for the year.

However, we remain cautious about aggressive competition. Challenging economic and market trends along with unfavorable internal issues will likely be near-term headwinds for the company.

ECL currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Globe Specialty Metals, Inc. ( GSM ), NewMarket Corporation ( NEU ), and Sensient Technologies Corp. ( SXT ). All of these have a Zacks Rank #2 (Buy).



ECOLAB INC (ECL): Free Stock Analysis Report

GLOBE SPECIALTY (GSM): Free Stock Analysis Report

NEWMARKET CORP (NEU): Free Stock Analysis Report

SENSIENT TECH (SXT): 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 , Earnings , Stocks

Referenced Stocks: ECL , GSM , NEU , SXT

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