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Ecolab (ECL) Down 3.7% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Ecolab Inc. (ECL - Free Report) . Shares have lost about 3.7% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is ECL due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

Ecolab reported first-quarter 2018 adjusted earnings of 91 cents per share, which beat the Zacks Consensus Estimate by 3.4%. Earnings also rose 13.8% on a year-over-year basis.

Adjusted quarterly net sales were $3.47 billion, up 9.8% from the year-ago quarter. Also, net sales beat the Zacks Consensus Estimate of $3.37 billion.

Segmental Analysis

Global Industrial

Sales in the segment grew 5% year over year to almost $1.24 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.

However, acquisition-adjusted fixed currency operating income in the segment declined 5% on a year-over-year basis due to higher delivered product costs and massive investments in the business.

Global Institutional

Sales increased 9% to $1.22 billion led by strong growth in the Specialty business line. The segment witnessed solid growth in North America and Asia Pacific.

Acquisition adjusted fixed currency operating income rose 4% year over year.

Global Energy

Sales rose 9% to $847.1 million on strong growth in the well stimulation business and modest gains in the downstream business.

Acquisition-adjusted fixed currency operating income remained flat year over year.

Other

Sales declined 11% year over year to $197.4 million. However, sales in this segment witnessed robust growth in North America.

Notably, the Other segment now has Ecolab’s Colloidal Technologies unit. The unit was previously part of the Global Industrial Reportable segment.

Acquisition adjusted fixed currency sales rose 8% year over year, as the Pest Elimination unit within the segment registered solid growth in North America and Europe.

Margin Analysis

The company’s margins in the quarter under review remained under pressure owing to higher delivered-product costs.

As a percentage of revenues, Ecolab registered adjusted gross margin of 40% in the first quarter, down 150 basis points (bps) on a year-over-year basis.

Adjusted operating margin in the first quarter contracted 60 bps to 10.9% of net revenues.

However, Ecolab is hopeful of the latest pricing initiatives that it has undertaken. Per management, these are expected to boost margins in the coming quarters.

View Up

Ecolab expects full-year 2018 adjusted earnings per share in the range of $5.30 to $5.50, up from the previously issued range of $5.25-$5.45. Notably, this represents an increase of 13-18% year over year. The Zacks Consensus Estimate is pegged at $5.35.

As a percentage of revenues, adjusted gross margin is expected at 42% of net revenues, which is significantly below the previously issued range of 47-48%.

For the second quarter of 2018, Ecolab expects adjusted earnings per share in the range of $1.23 to $1.29. The current outlook reflects an increase of 10-15% year over year.

Adjusted gross margin for the quarter is expected at around 42% of net revenues.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter compared to four lower.

Apple Inc. Price and Consensus

VGM Scores

At this time, ECL has an average Growth Score of C, however its Momentum is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for value and to a lesser degree growth.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions indicates a downward shift. Notably, ECL has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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