It has been about a month since the last earnings report for Ecolab (
ECL Quick Quote ECL - Free Report) . Shares have added about 2.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ecolab due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Ecolab Q2 Earnings & Revenues Beat Mark, Margins Rise
Ecolab reported second-quarter 2021 adjusted earnings per share of $1.22, up 87.7% year over year. Moreover, the bottom line exceeded the Zacks Consensus Estimate by 3.4%.
The year-over-year improvement in the bottom line reflects volume growth, accelerating pricing in excess of higher delivered product costs and lower bad debt expense. This more than offset the adverse impacts of increased variable compensation and Texas freeze. The Texas freeze was estimated to have an unfavorable impact of 5 cents per share.
GAAP earnings per share for the quarter was $1.08 a share, reflecting a huge 145.5% surge from the year-earlier figure.
Revenues grossed $3.16 billion in the reported quarter, up 17.8% year over year. The metric again surpassed the Zacks Consensus Estimate by 2.3%.
Ecolab’s fixed currency sales improved 13% whereas acquisition adjusted fixed currency sales climbed 12% from the prior-year period’s level.
The year-over-year uptick in the second quarter top line was driven by strength in Institutional & Specialty, and Other segments along with robust growth in Industrial segment. However, this was offset by the Healthcare & Life Sciences segment’s modest decline.
The Global Industrial segment’s fixed currency sales of $1.56 billion reflect 3.8% growth whereas acquisition adjusted fixed currency sales inched up 3% year over year. The improvement in the acquisition adjusted fixed currency sales was driven by strong growth in Water and Paper (led by recovering market conditions and new business wins) as well as improving trends in Food & Beverage. This revenue growth more than offset lower Downstream sales which reflected low-margin refinery business exits.
The Global Institutional & Specialty arm’s fixed currency sales of $978.9 million reflect growth of 33.5% whereas acquisition adjusted fixed currency sales surged 33% year over year. The improvement in the Institutional division reflected recovering markets in the United States, driven by new business wins including gains from Ecolab Science Certified programs, innovation and pricing.
The Global Healthcare and Life Sciences’ fixed currency sales of $303.5 million declined 5.6% while acquisition adjusted fixed currency sales fell 8% year over year. Despite the fall in segmental revenues in the second quarter, underlying growth remained strong and consistent with the last few quarters’ trends, driven by new business wins and increased hygiene awareness.
The Other segment’s fixed currency sales of $306.6million improved 23.1% while acquisition adjusted fixed currency sales jumped 23% year over year. The uptick in acquisition adjusted fixed currency sales was led by strong growth in Pest Elimination, driven by recovering markets and new business wins.
In the quarter under review, Ecolab’s gross profit improved 25.6% to $1.32 billion. Gross margin expanded 260 basis points (bps) to 41.7%.
Selling, general and administrative expenses rose 8.2% to $853.3 million year over year.
Adjusted operating profit totaled $465.4 million, rising 78% from the prior-year quarter’s level. Adjusted operating margin in the quarter also expanded 498 bps to 14.7%.
Ecolab exited the second quarter of 2021 with cash and cash equivalents of $1.40 billion compared with $1.19 billion at the end of the first quarter. Total debt at the end of the second quarter of 2021 was $6.73 billion compared with $6.71 billion at the end of the first quarter.
Cumulative net cash flow from operating activities at the end of the second quarter was $798.3 million compared with $640.2 million a year ago.
The company has not issued either quarterly or 2021 outlook due to the continued uncertainty surrounding the COVID-19 pandemic and the full scope of its impact on the global economy and duration of the same.
However, the company expects continued recovery in the United States and Europe to reopen as anticipated, soon followed by the rest of the world. Further, Ecolab expects continued strong year-over-year performance in the second half of 2021, with robust sequential earnings improvement in the third quarter of 2021.
The company continues to expect full year 2021 earnings per share to surpass 2019 earnings per share from continuing operations, excluding the impact of 15 cents per share from the Texas freeze.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -5.57% due to these changes.
Currently, Ecolab has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ecolab has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.