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Ecolab (ECL) Up 4.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Ecolab (ECL - Free Report) . Shares have added about 4.3% 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 the most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

Ecolab reported second-quarter 2018 adjusted earnings of $1.27 per share, in line with the Zacks Consensus Estimate. Earnings also rose 13% on a year-over-year basis.

Adjusted quarterly net sales were $3.69 billion, up 6.6% from the year-ago quarter’s tally. Also, net sales edged past the Zacks Consensus Estimate of $3.70 billion.

Segmental Analysis

Global Industrial

Sales in the segment grew 10% year over year to almost $1.33 billion. Acquisition adjusted fixed currency sales in the segment were $1.35 billion, up 5% year over year.

The upside was driven by major gains in the Water, Food & Beverage and Life Sciences unit. Europe, North America and Latin America drove the Global Industrial regional growth.

However, acquisition-adjusted fixed currency operating income in the segment fell 2% on a year-over-year basis due to higher delivered product costs and massive investments in the business.

Global Institutional

Sales improved 6% to $1.3 billion, led by strong growth in the Specialty business. Acquisition adjusted fixed currency sales in the segment were $1.31 billion, up 3% year over year.

The segment witnessed solid growth in Specialty unit. North America and Asia Pacific witnessed strong growth in the quarter.

Acquisition adjusted fixed currency operating income declined 2% year over year, thanks to higher delivered product costs.

Global Energy

Sales in the segment rose 6% to $845.2 million, owing to strong growth in the well stimulation business and modest gains in the downstream business. Acquisition adjusted fixed currency sales in the segment were $854 million, up 6% year over year.

Acquisition adjusted fixed currency operating income rallied 29%, courtesy of volume gains, favorable pricing and a solid product mix.

Other

Sales declined 7% year over year to $220.5 million. Acquisition adjusted fixed currency sales in the segment were $222.3 million, up 8% year over year. Sales in this segment witnessed robust growth in North America.

Guidance

Ecolab reiterated guidance for 2018.

The company expects adjusted earnings in the range of $5.30-$5.50 per share. Notably, this represents an increase in the band of 13-18% year over year.

As a percentage of revenues, adjusted gross margin is expected in the range of 41-42% of net revenues.

For the third quarter of 2018, Ecolab expects adjusted earnings in the range of $1.49-$1.57 per share. The current outlook reflects an increase of 8-14% year over year.

Adjusted gross margin for the third quarter of 2018 is expected to be 42% of net revenues.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Ecolab has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. 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.

The company's stock is suitable solely for momentum based on our style scores.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, 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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