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Ecolab (ECL) Up 2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Ecolab (ECL - Free Report) . Shares have added about 2% 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 Miss Estimates, View Slashed

Ecolab reported third-quarter 2018 adjusted earnings of $1.53 per share, which missed the Zacks Consensus Estimate of $1.55. Earnings also rose 10.9% on a year-over-year basis.

Quarterly net sales amounted to $3.75 billion, up 5% from the year-ago quarter’s tally. Net sales marginally missed the Zacks Consensus Estimate of $3.77 billion.

Segmental Analysis

Global Industrial

Sales in the segment grew 8% year over year to almost $1.41 billion. The upside was driven by major gains in the Water, Food & Beverage and Life Sciences units. Europe, North America and Latin America drove the Global Industrial regional growth.

Global Institutional

Sales improved 6% to $1.34 billion, led by strong growth in the Specialty business. The segment witnessed solid growth in the Specialty unit. North America and Asia Pacific witnessed strong growth in the quarter.

Global Energy

Sales in the segment rose 9% to $889.6 million, owing to strong growth in the well stimulation business and modest gains in the downstream business.

Other

Sales declined 6% year over year to $232.9 million. However, the segment witnessed strong gains in both Pest Elimination and Colloidal technologies.

Margin Analysis

Ecolab registered gross profit of $1.55 billion, up 3.1% year over year. As a percentage of revenues, gross margin in the quarter was 41.3%, down 80 basis points year over year.

Selling, general and administrative expenses totaled $955.2 million, up 3% year over year.

Guidance

Ecolab lowered guidance for 2018.

The company expects adjusted earnings in the range of $ 5.20-$5.30 per share, lower than the previous guidance of $5.30-$5.50. Notably, this represents an increase of 11-13% year over year.

As a percentage of revenues, adjusted gross margin is expected to be 41% of net revenues.

For the fourth quarter of 2018, Ecolab expects adjusted earnings in the range of $1.49-$1.59 per share. The current outlook reflects an increase of 8-15% year over year.

Adjusted gross margin for the fourth quarter of 2018 is expected to be 41% of net revenues.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.37% due to these changes.

VGM Scores

Currently, Ecolab has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. 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.

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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