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Will Global Industrial Unit Boost Ecolab's (ECL) Q2 Earnings?

Ecolab Inc. ECL is scheduled to report second-quarter 2018 results on Jul 31, before the market opens. Solid performance in the Global Industrial segment is likely to drive the top line. Further, an expected improvement in revenues in other segments is likely to help the company generate solid results. However, the company faces pricing pressure in the Energy segment, which is likely to dampen profits in the upcoming quarterly results.

In the last reported quarter, the company posted adjusted earnings of 91 cents per share, which beat the Zacks Consensus Estimate by 3.4%. Earnings also rose 13.8% on a year-over-year basis. Adjusted quarterly net sales were $3.47 billion, up 9.8% from the year-ago quarter's figure. Also, net sales beat the Zacks Consensus Estimate of $3.37 billion.Ecolab delivered an average positive earnings surprise of 1.1% in the past four quarters.

For the second quarter, the Zacks Consensus Estimate for revenues is pegged at $3.7 million, reflecting growth of 7% on a year-over-year basis. The Zacks Consensus Estimate for earnings is pegged at 1.27 cents, indicating an increase of 12.4% year over year.

Let's delve deeper.

Ecolab Inc. Price and EPS Surprise

Ecolab Inc. Price and EPS Surprise | Ecolab Inc. Quote

Global Industrial to Drive Q2

Global Industrial accounted for 35.7% of total revenues in the last reported quarter.

Sales in the segment grew 5% year over year to almost $1.24 billion. The upside was driven by major gains in Water, Food & Beverage and Life Sciences unit. Europe, North America and Latin America propelled growth in the segment.

For the upcoming quarterly results, the Zacks Consensus Estimate for Global Industrial segment is pegged at $1.32 billion. The figure reflects an increase of 17.6% from the year-ago quarter's figure.

The Global Industrial segment primarily provides water treatment and process applications. Operating units within the Global Industrial reportable segment include Nalco Water, Food & Beverage, Paper, Textile Care and Life Sciences.

Recently, the company acquired New York-based Cascade Water Services Inc - a privately-held company - that provides water treatment programs and services to the U.S. institutional market. Notably, acquisition broadens services and improves opportunities in strategic water treatment market in the Global Industrial unit.

Other Factors Impacting Q2

Global Institutional - a Key Contributor

The segment accounted for 35.2% of total revenues in the last reported quarter.

Sales increased 9% to $1.22 billion led by strong growth in the Specialty business line. The segment witnessed solid growth in North America and Asia Pacific.

The segment provides specialized cleaning and sanitizing products to the foodservice, hospitality, lodging, healthcare, government, education and retail industries. Operating units within the Global Institutional segment include Institutional, Specialty and Healthcare.

Management expects second-quarter 2018 results to surpass first-quarter 2018 numbers with solid growth in the U.S. business. Further, the China business within the Global Institutional unit has been growing steadily at double digits or high single digits and is expected to sustain the pace, which will be reflected in the upcoming quarterly result.

The Zacks Consensus Estimate for the Global Institutional segment is pegged at $1.31 billion, up 7.6% year over year.

Global Energy in Focus

Global Energy accounted for 24% of total revenues in the last reported quarter. Sales rose 9% to $847.1 million on strong growth in the well stimulation business and modest gains in the downstream business.

The segment operates under the moniker - Nalco Champion. Global Energy caters to the process chemical and water treatment needs of the global petroleum and petrochemical industries in upstream as well as downstream applications. Management announced margin improvements and operating income growth in the energy business in the last reported quarter.

Solid estimate revision trends in the Global Energy segment buoy optimism. The Zacks Consensus Estimate for the Global Energy segment is pegged at $855 million, reflecting an improvement of 8% on a year-over-year basis.

View Up

For the second quarter of 2018, Ecolab expects adjusted earnings per share in the range of $1.23-$1.29. The current outlook reflects an increase of 10-15% year over year.

Adjusted gross margin for the quarter is expected at around 42% of net revenues.

Issues Pertaining to ERP Adoption

The company is in the process of adopting enterprise resource planning (ERP) and human resources software systems. The changes will incur one-time implementation costs that will mar earnings in the upcoming quarterly results.

The new ERP system will be in North America. Management confirmed that the company has a lot of experience in ERP roll out. However, the completion of the process requires time and huge expenditures.

What Does Our Model Predict?

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise in the fiscal third quarter. This is not the case here as you will see below.

Earnings ESP: Ecolab has an Earnings ESP of -0.71%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Ecolab carries a Zacks Rank #3.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Bio-Rad Laboratories BIO has an Earnings ESP of +7.41% and a Zacks Rank of 2.

Baxter International Inc BAX has an Earnings ESP of +0.90% and a Zacks Rank of 2.

DexCom, Inc DXCM has an Earnings ESP of +12.84% and a Zacks Rank of 3.

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Ecolab Inc. (ECL): Free Stock Analysis Report

Baxter International Inc. (BAX): Free Stock Analysis Report

DexCom, Inc. (DXCM): Free Stock Analysis Report

Bio-Rad Laboratories, Inc. (BIO): 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 Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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