Back to top

Image: Bigstock

Ecolab (ECL) Q3 Earnings & Revenues Beat Mark, Margins Down

Read MoreHide Full Article

Ecolab Inc. (ECL - Free Report) reported third-quarter 2021 adjusted earnings per share (EPS) of $1.38, up 20% year over year. The bottom line exceeded the Zacks Consensus Estimate by 6.9%.

The year-over-year improvement in the bottom line reflects accelerated pricing and volume growth. This more than offset the adverse impacts of significantly higher delivered product costs and an unfavorable impact from Hurricane Ida, which was estimated to have an impact of 3 cents per share. This was lower than the company’s expectations.

GAAP EPS for the quarter was $1.12, reflecting a 31.8% surge from the year-earlier figure.

Revenue Details

Revenues grossed $3.32 billion in the reported quarter, up 10% year over year. The metric surpassed the Zacks Consensus Estimate by 1.1%.

Ecolab’s fixed currency as well as acquisition-adjusted fixed currency sales climbed 8% from the prior-year period’s level.

The year-over-year uptick in the third-quarter top line was driven by double-digit growth in the Institutional & Specialty, and Other segments, along with robust growth in the Industrial segment. However, this was offset by the Healthcare & Life Sciences segment’s decline.

Segmental Analysis

The Global Industrial segment’s fixed currency sales of $1.62 billion reflect 7.1% growth whereas acquisition-adjusted fixed currency sales inched up 7% 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 robust growth in Food & Beverage, and modest sales growth in Downstream.

The Global Institutional & Specialty arm’s fixed currency sales of $1.08 billion reflect growth of 17.7%, whereas acquisition-adjusted fixed currency sales surged 17% year over year. The improvement in the Institutional division reflected recovering markets in the United States and Europe as the number of Ecolab accounts and solutions per account near pre-COVID-19 levels. This was driven by new business wins, including gains from Ecolab Science Certified programs, innovation and pricing. Specialty sales increased modestly on the back of strong quickservice sales, which more than offset lower food retail sales.

Ecolab Inc. Price, Consensus and EPS Surprise

Ecolab Inc. Price, Consensus and EPS Surprise

Ecolab Inc. price-consensus-eps-surprise-chart | Ecolab Inc. Quote

The Global Healthcare and Life Sciences’ fixed currency sales of $290.2 million declined 13.4% while acquisition-adjusted fixed currency sales fell 17% year over year. Despite the fall in segmental revenues in the third quarter, underlying Healthcare sales are projected to be growing at mid single-digit rates whereas Life Sciences’ sales are estimated to be growing at low double-digit rates, both driven by new business wins and increased hygiene awareness.

The Other segment’s fixed currency sales of $326.3 million improved 13% while acquisition-adjusted fixed currency sales also jumped 13% year over year. The uptick in acquisition-adjusted fixed currency sales was led by strong growth in Pest Elimination, driven by new business wins and recovering markets

Margin Analysis

In the quarter under review, Ecolab’s gross profit improved 4.4% to $1.30 billion. Gross margin contracted 211 basis points (bps) to 39.3%.

Selling, general and administrative expenses rose 3.7% to $832 million year over year.

Adjusted operating profit totaled $472 million, rising 5.8% from the prior-year quarter’s level. Adjusted operating margin in the quarter also contracted 57 bps to 14.2%.

Financial Position

Ecolab exited the third quarter of 2021 with cash and cash equivalents of $897.9 million compared with $1.40 billion at the end of the second quarter. Total debt at the end of the third quarter of 2021 was $5.95 billion compared with $6.73 billion at the end of the second quarter.

Cumulative net cash flow from operating activities at the end of the third quarter was $622.7 million compared with $451.8 million a year ago. Capital expenditure at the end of the third quarter was $178.2 million compared with $111.7 million a year ago.

Meanwhile, Ecolab has a consistent dividend-paying history with five-year annualized dividend growth being 6.53%.

Guidance

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 the duration of the same.

However, the company expects continued, if uneven, recovery in the United States and Europe to reopen as anticipated, soon followed by the rest of the world. Ecolab expects continued strong year-over-year performance in the fourth quarter 2021, led by increased volume and price momentum.

The company continues to expect fourth-quarter earnings to grow in double digits. Ecolab also continues to expect to register a strong uptick in earnings in full-year 2021 compared to comparable 2020 numbers. This is likely to more than offset the substantial delivered product and other cost increases, which are estimated to have a combined unfavorable impact.

Our Take

Ecolab exited the third quarter with better-than-expected results. However, the company witnessed weak performance in the Global Healthcare and Life Sciences business segment in the quarter under review. Contraction of both margins does not bode well. The fact that it is yet to provide any financial outlook raises our apprehension.

Nonetheless, the company registered a robust year-over-year uptick in both the top and bottom lines, along with solid performances across the majority of its segments. Ecolab’s strength in new business, innovation pipelines and the new focus areas (including life sciences, data centers and animal health) are well-positioned to drive growth and its global leadership. The company’s digital capabilities are also continuing to broaden, develop and add competitive advantages, which are encouraging.

Zacks Rank and Stocks to Consider

Ecolab currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Quest Diagnostics Incorporated (DGX - Free Report) , Abbott Laboratories (ABT - Free Report) , and HCA Healthcare, Inc. (HCA - Free Report) .

Quest Diagnostics, carrying a Zacks Rank #2 (Buy), reported third-quarter 2021 adjusted EPS of $3.96, which beat the Zacks Consensus Estimate by 33.8%. Third-quarter revenues of $2.77 billion outpaced the consensus mark by 12.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Abbott reported third-quarter 2021 adjusted EPS of $1.40, which surpassed the Zacks Consensus Estimate by 52.2%. Third-quarter revenues of $10.93 billion outpaced the Zacks Consensus Estimate by 15.3%. It currently carries a Zacks Rank #2.

HCA Healthcare reported third-quarter 2021 adjusted EPS of $4.57, surpassing the Zacks Consensus Estimate by 11.5%. Revenues of $15.28 billion surpassed the Zacks Consensus Estimate by 4.7%. It currently carries a Zacks Rank #2.