) adjusted earnings per share of 87 cents for the third quarter
of 2012 were in line with the Zacks Consensus Estimate. However,
this result represented a 16% jump from the year-ago earnings of
75 cents per share.
Adjusted earnings exclude tax adjustments as well as special
gains and charges such as those related to the merger with Nalco.
Despite the inclusion of the Nalco merger restructuring and
integration expenses, profit attributable to Ecolab in the
reported quarter climbed 54% year over year to $238 million (or
80 cents per share).
Revenues soared 74% (including the Nalco merger) year over year
to $3,023.3 million. On a fixed currency basis, revenues grew 7%
in comparison to the year-ago pro forma fixed currency sales
(inclusive of the Nalco operations).
However, revenues were lower than the Zacks Consensus Estimate
of $3,086 million. Growth was triggered by higher sales from
Global Energy, Healthcare, Latin America and worldwide Kay as
well as the Pest Elimination franchises.
Revenues from the larger U.S. Cleaning & Sanitizing segment
increased 4% year over year, on a constant currency pro forma
basis, to $774.1 million led by the Kay and Healthcare
businesses. On a constant currency pro forma basis, sales from
the U.S. Other Services division grew 4% to $124.2 million in the
Revenues from Ecolab's International Cleaning, Sanitizing &
Other Services segment grew 5% on a constant currency pro forma
basis to $813.5 million driven by strong sales in Latin America
and Asia-Pacific and moderate growth in Europe.
Global Water sales were $542.9 million (up 5% on a constant
currency pro forma basis). Higher sales in North America and
Latin America, which offset lower demand from industrial clients
in Asia and Europe, contributed to revenue growth. Revenues from
Global Paper dropped 4% to $202.4 million, while Global Energy
segment's revenues surged 20% to $586.6 million, on a constant
currency pro forma basis.
Gross margin dropped to 46.5% in the third quarter from 49.4% a
year ago. Adjusted fixed currency operating income grew 19% in
the quarter to $434 million. Reported operating margin inched
down to 13.3% from 13.8% in the prior-year quarter.
Selling, general and administrative expenses were lower at 32.3%
of sales compared with 34.3% of sales in the year-ago quarter.
Ecolab exited the quarter with cash and cash equivalents of $324
million, up 56.3% from the previous-year quarter. Long-tem debt
increased more than seven times to $5,386.7 million.
With the exception of special gains and charges, Ecolab's
guidance for both fourth quarter and full year 2012 excludes the
impact of the acquisition of Champion Technologies. The company
narrowed its forecast of adjusted earnings per share to $2.96 to
$3.00 from $2.95 to $3.02 for fiscal 2012, representing 17% to
18% year-over-year increase.
Special gains and charges (including restructuring charges, Nalco
merger and integration expenses along with costs associated with
the pending Champion takeover) are expected to be roughly 60
cents a share (earlier 65 cents) for 2012. These expenses will
however be offset by a gain from the divestment of the Vehicle
For fourth quarter 2012, adjusted earnings are expected to be in
a range of 87 cents to 91 cents, representing a 24%-30%
year-over-year growth. Adjusted gross margin (except special
gains and charges) is expected to be roughly 46%-47% and SG&A
(including purchasing accounting), as a percentage of sales, is
anticipated to be roughly 32%.
The company expects to incur extraordinary items amounting to
10 cents per share in the fourth quarter, mainly related to the
Nalco merger, the pending Champion acquisition and restructuring
of operations in Europe, offset by a gain from the divestment of
the Vehicle Care business.
St. Paul, Minnesota-based Ecolab serves the food service, food
and beverage processing, healthcare, energy, water treatment and
hospitality markets both in the U.S. as well as internationally.
The company 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 on product innovation,
sales organization, volume growth, appropriate pricing, and
merger synergies along with the rationalization of operating
CHURCH & DWIGHT (CHD): Free Stock Analysis
CLOROX CO (CLX): Free Stock Analysis Report
ECOLAB INC (ECL): Free Stock Analysis Report
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Although we are impressed by Ecolab's strong international
exposure, we remain cautious about aggressive competition from
the likes of
Church & Dwight
). Raw material price inflation also remains a headwind.
We currently have a Neutral recommendation on Ecolab. The stock
carries a Zacks #2 Rank which translates into a short-term Buy