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Will Global Industrial Unit Boost Ecolab's (ECL) Q1 Earnings?

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Ecolab Inc. (ECL - Free Report) is scheduled to report first-quarter 2018 results on May 1, 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 this season.

Last quarter, Ecolab reported adjusted earnings of $1.39 per share, which missed the Zacks Consensus Estimate by a penny. Earnings improved from $1.25 in the year-ago quarter. Adjusted quarterly net sales were $3.56 billion, up 7.2% from the year-ago quarter. Also, net sales missed the Zacks Consensus Estimate of $3.62 billion.

For the current quarter, the Zacks Consensus Estimate for revenues is pegged at $3.37 million, reflecting a rise of 6.5% year over year. The Zacks Consensus Estimate for earnings is pegged at 88 cents, indicating an increase of 10% year over year.

Let’s delve deeper.

Ecolab Inc. Price and EPS Surprise

 

Global Industrial to Drive Q1

Global Industrialaccounted for 36.2% of total revenues in the last quarter. Sales in the segment grew 6.1% year over year to almost $1.29 billion. The upside was driven by major gains in Water, Food & Beverage and Life Sciences unit. Europe, North America and Latin America led the Global Industrial regional growth.

For the upcoming quarterly results, the Zacks Consensus Estimate for Global Industrial segment is pegged at $1.20 billion. The figure reflects an increase of 5.7% from the year-ago figure.

Ecolab’s 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.

Ecolab 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.

On Mar 7, Ecolab divested its phosphonate component business in China to Italmatch Chemicals SpA, a leading global specialty chemicals group and phosphonate supplier. Per management, the divestment is likely to enhance Ecolab’s strategic focus on the core business and allow it to drive profits in China in the near term.

Other Factors to Consider

Guidance

For the first quarter of 2018, Ecolab expects adjusted earnings in the range of 85-93 cents per share, up from the previous range of 84-92 cents. The current outlook reflects an increase of 6-16% year over year.

Adjusted gross margin for the first quarter of 2018 is expected to be 46% of net revenues.

For 2018, Ecolab projects adjusted earnings in the range of $5.25-$5.45 per share, up 12-16% year over year.

As a percentage of revenues, adjusted gross margin is expected in the range of 47-48%.

Global Energy to Boost Top Line

Global Energy accounted for 24% of total revenues in the last quarter. Sales in the segment rose 10.8% to $853.2 million owing to strong growth in the well stimulation business and modest gains in the downstream business.

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

Solid estimate revision trends in Ecolab’s Global Energy segment buoy optimism. The Zacks Consensus estimate for the Global Energy segment is pegged at $812 million, reflecting a nominal improvement of 7.3% on a year-over-year basis.

Global Institutional in Focus

Global Institutionalaccounted for 34.3% of total revenues in the last quarter. Sales increased 8.5% 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 first-quarter 2018 results to surpass fourth-quarter 2017 number with solid growth in the U.S. business. Further, the China business within the Global Institutional unit has been growing very steadily at double digits or high single digits and is expected to maintain its pace, which will be reflected in the to-be-reported quarter.

The Zacks Consensus Estimate for the Global Institutional segment is pegged at $1.13 billion, reflecting a rise of 5.1% on a year-over-year basis.

Thus, Ecolab is confident of improving growth trajectory, which will be visible in the upcoming quarterly results.

What Our Model Predicts

Our quantitative model shows an earnings beat for Ecolab this quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates.

Zacks ESP: Earnings ESP for Ecolab is +0.76%. 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.

Other Stocks Worth a Look

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

The Cooper Companies, Inc. (COO - Free Report) has an Earnings ESP of +0.26% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teleflex Incorporated (TFX - Free Report) has an Earnings ESP of +0.58% and a Zacks Rank #3.

AbbVie Inc. (ABBV - Free Report) has an Earnings ESP of +0.06% and a Zacks Rank #3.

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