We have reiterated our Neutral recommendation on
The St. Paul, Minnesota-based company 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.
Its second quarter 2012 adjusted earnings per share of 72 cents
were in line with the Zacks Consensus Estimate. Profit attributable
to Ecolab grew 47% year over year to $184.5 million (or 62 cents
per share), including the Nalco merger restructuring and
However, revenues of $2,958.7 million were lower than the Zacks
Consensus Estimate of $3,023 million. The company's Global Energy,
Healthcare and Latin American franchises contributed to pro forma
fixed currency revenue growth of 6% (inclusive of the Nalco
Revenues from the company's larger U.S. Cleaning &
Sanitizing segment climbed 5% year over year to $709 million,
driven by its Kay and Healthcare businesses.
We are encouraged by Ecolab's consistent performance of
delivering double-digit earnings growth despite the challenging
business environment. The company remains optimistic regarding
improvement in end-market demand, its ability to attract new
customers and opportunities for greater customer penetration
through new product development. The company launched the Apex2
warewashing platform and a few other products in May to build on
its industry-leading position.
Ecolab continues to invest in strategic areas such as health
care, food, water and energy and global pest elimination to expand
its business. Management is currently emphasizing product
innovation, sales organization, volume growth, appropriate pricing,
and merger synergies along with rationalizing operating costs.The
company has also taken up an appropriate pricing strategy to offset
higher delivered product costs.
Ecolab believes in growth through acquisitions. The company's
Nalco acquisition in December 2011 marked the combination of
Nalco's market leadership in water and energy services with
Ecolab's competency in food safety and cleaning. The integration
process is moving in the right direction as the company is able to
deliver both growth and cost synergies. Ecolab continues to focus
on investment in key growth businesses and bolt-on acquisitions to
gain market share and boost future profitability.
Moreover, Ecolab's strong international presence has boosted
growth, and we believe it will continue in the coming years buoyed
by the emerging markets. Asia-Pacific and Latin America represent
key growth areas for the company's overseas operations. The company
recently opened a new manufacturing and distribution center in
Taicang, China, which is poised to be the leading driver of
Ecolab's sustained growth in the region.
Apart from its positive impact on the company, Ecolab's
significant international presence also helps widen its customer
base. However, difficult macroeconomic problems and fluctuations in
currency exchange rates are adversely impacting international
Higher delivered product costs have also adversely impacted the
bottom line of the business, but this has been offset by solid
sales and pricing growth, synergies, cost efficiency, along with
new accounts and offerings. Fluctuations in the cost of raw
materials, especially in Europe, also remain a headwind.
Even though the company has completed multiple acquisitions over
the past few years, back-to-back acquisitions pose substantial
integration risks. Also, higher interest charges, share counts,
depreciation and amortization (D&A) cost associated with the
Nalco acquisition are expected to offset healthy revenue growth in
In addition, Ecolab operates in highly competitive markets and
hence we remain cautious about the aggressive competition from
Church & Dwight
). We currently have a Neutral recommendation on the stock, which
carries a short-term Zacks #3 Rank (Hold).
CHURCH & DWIGHT (CHD): Free Stock Analysis
CLOROX CO (CLX): Free Stock Analysis Report
ECOLAB INC (ECL): Free Stock Analysis Report
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