Ecolab Inc. ECL reported adjusted earnings (excluding special gains, charges and tax items) of $1.28 per share in the third quarter of 2015, which were in line with the Zacks Consensus Estimate.
Earnings per share (EPS) increased 6% from the year-ago quarter primarily buoyed by raw material cost savings, cost efficiency programs, synergies and a lower tax rate, which more than offset strong currency and pension headwinds.
Sales declined 7% year over year to $3.45 billion in the quarter, which missed the Zacks Consensus Estimate of $3.54 billion. On a fixed currency basis, sales increased 1%.
Global Industrial segment sales grew 7% year over year to almost $1.27 billion at fixed currency, driven by the Food & Beverage operating units. Regionally, Latin America and Asia Pacific reported strong sales growth, with good gains in North America, Europe and Middle East & Africa (MEA).
Global Institutional segment sales increased 5% to $1.14 billion, led by strong growth in the specialty and institutional business. Sales performance has been strong in most of the regions, except for Europe where gains have been modest.
Global Energy segment sales declined 12% to $927 million in the reported quarter, owing to weak performance in the upstream businesses.
Sales from the Other segment climbed 5% year over year to $202 million.
Operating income (excluding special gains and charges) at fixed currency increased 7% from the year-ago quarter to $591.4 million. Global Industrial, Global Institutional and Other segment operating profits improved 21%, 14% and 16%, respectively. Global Energy segment operating profit plunged 21% on a year-over-year basis.
For fourth-quarter 2015, Ecolab projects adjusted gross margin in the range of 47% to 48%. Selling, general & administrative (SG&A) expenses, as a percentage of sales, are expected to be approximately 31%. Interest expenses are projected at around $60 million.
Adjusted EPS is estimated between $1.20 and $1.30 (flat to 8% year-over-year increase). Pension expense and unfavorable foreign currency is expected to affect EPS by 16 cents.
For 2015, Ecolab expects adjusted gross margin to be roughly 47%. SG&A expenses, as a percentage of sales, are projected to be approximately 32%. Interest expense is forecasted in the range of $240 million to $250 million. Unfavorable foreign exchange rate is expected to hurt sales by 6%.
Ecolab lowered 2015 adjusted EPS forecast to $4.35 to $4.45 from the earlier guided range of $4.45 and $4.60. The current guided range reflects a 4% to 6% year-over-year increase. Pension expense is expected to impact EPS by 9 cents in 2015. Unfavorable foreign currency is likely to affect EPS by 33 cents.
Ecolab's third-quarter results fail to impress us. Volatile foreign exchange, pricing pressure in the Energy segment and pension are some of the near-term headwinds. Further, weakness in the Global Energy segment will continue to hurt top-line growth, in our view.
Nevertheless, Ecolab's strong product portfolio, new product launches and strategic acquisitions will drive overall results, going forward. Ecolab's growing focus on water management and conservation is the key growth catalyst, in our view.
Stocks to Consider
Currently, Ecolab carries a Zacks Rank #3 (Hold).
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