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On Jun 11, we retained Ecolab Inc. (ECL - Analyst Report) at Neutral, following moderate first-quarter results. Although the company was able to maintain double-digit bottom-line growth, difficult macroeconomic trends are pressurizing the top line.

Why the Retention?

On Apr 30, Ecolab posted adjusted earnings per share of 60 cents for the first quarter of 2013, which exceeded the Zacks Consensus Estimate by 2 cents. This result represented a 20% jump from the year-ago earnings of 50 cents per share.

Revenues on a reported and fixed currency basis grew 2% year over year to $2,872.1 million for the quarter. Excluding acquisitions and divestitures, adjusted fixed currency revenues increased 3%. However, revenues missed the Zacks Consensus Estimate of $2,925 million by 1.8%. Strong gains in Latin America and Asia-Pacific were partially offset by sluggish growth in North America and Europe.

The company’s earnings managed to beat the Zacks Consensus Estimate in 1 out of the last 4 quarters. However, it managed to meet the estimates in the rest of the quarters leading to an average surprise of 3.45%. Over the last 60 days, the Zacks Consensus Estimate for 2013 inched down by 0.3% to $3.51 per share but increased by 7.3% to $4.15 per share for 2014. This also implies that the firms still hold similar views on the stock.

We are impressed by Ecolab’s consistent delivery of double-digit earnings growth despite the current challenging business environment. Ecolab finally managed to successfully complete the pending Champions acquisition in the first quarter. The acquisition should boost the company’s Energy business. Additionally, the company is aggressively streamlining its business units to enhance margins and profitability.

Though multiple acquisitions have expanded Ecolab’s product range, we remain concerned about the acquisition and integration-related risks. Difficult economic trends, currency fluctuations, higher raw material prices, product delivery costs and pension costs also remain headwinds.

Other Stocks to Consider

Ecolab currently has a Zacks Rank #3 (Hold). Other companies from the basic materials sector such as American Vanguard Corp. (AVD - Snapshot Report), OM Group Inc. (OMG - Snapshot Report) and Minerals Technologies Inc. (MTX - Snapshot Report) warrant a look. While AVD and OMG are Zacks Rank #1 (Strong Buy) stocks, MTX carries a Zacks Rank #2 (Buy).

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