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Why Is Ecolab (ECL) Up 4.6% Since Last Earnings Report?
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A month has gone by since the last earnings report for Ecolab (ECL - Free Report) . Shares have added about 4.6% 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 drivers.
Ecolab Q3 Earnings & Revenues Beat Mark, Margins Down
Ecolab reported third-quarter 2021 adjusted earnings per share 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 earnings per share 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.
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.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -10.34% due to these changes.
VGM Scores
Currently, Ecolab has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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.
Outlook
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.
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Why Is Ecolab (ECL) Up 4.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Ecolab (ECL - Free Report) . Shares have added about 4.6% 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 drivers.
Ecolab Q3 Earnings & Revenues Beat Mark, Margins Down
Ecolab reported third-quarter 2021 adjusted earnings per share 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 earnings per share 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.
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.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -10.34% due to these changes.
VGM Scores
Currently, Ecolab has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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.
Outlook
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.