Ecolab Remains Neutral - Analyst Blog

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We reiterate our Neutral rating on Ecolab Inc. ( ECL ). Its first quarter 2012 adjusted earnings per share of 50 cents beat the Zacks Consensus Estimate of 48 cents. Revenues of $2,810.9 million were ahead of the Zacks Consensus Estimate of $2,718 million.

The company's Global Energy and Latin American franchises along with Food & Beverage, U.S. Institutional and Global Water units have been generating positive results. Revenues from the company's larger U.S. Cleaning & Sanitizing segment climbed 4% year over year to $709 million in the reported quarter, driven by its Food & Beverage and Institutional divisions.

In constant currency, revenues from Ecolab's International segment increased 3% to $733 million backed by solid sales in Latin America. Global Water sales, in constant currency, were $498 million, driven by growth in metals, mining and food and beverage industries.

Ecolab acquired Nalco Holding Company on December 1, 2011 in a cash and stock deal worth roughly $8.3 billion. The deal marked the union of Nalco's market leadership in water and energy services with Ecolab's competency in food safety and cleaning. The merger has enabled the combined entity to address major trends such as growing food demand and food safety, water scarcity, rising energy demand and aging population's need for health care.

To boost growth, Ecolab continues to invest in key areas while rationalizing operating costs. It is also active on the acquisition front and continues to explore opportunities to expand into emerging markets for growth.

However, Ecolab's profits tumbled in the first quarter, as charges associated with restructuring and the Nalco acquisition more than offset growth in sales. While Ecolab will eventually benefit from the meaningful savings to be realized from its restructuring in Europe and the newly commenced Merger Restructuring Plan, associated expenses will continue to drag down its bottom line. In total, the European and the merger-related restructuring are expected to cost Ecolab roughly $150 million and $180 million, respectively.

Also, higher delivered product cost hurt the bottom line in the quarter, partly offset by solid sales and pricing growth, synergies, cost efficiency, and new account wins.

Ecolab operates in highly competitive markets. The company's U.S. Cleaning & Sanitizing and International divisions face stiff competition from Clorox ( CLX ) and Church & Dwight ( CHD ). Our recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).


 
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ECOLAB INC (ECL): 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 , Stocks

Referenced Stocks: CHD , CLX , ECL

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