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Ecolab (ECL) Down 3.5% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Ecolab (ECL - Free Report) . Shares have lost about 3.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ecolab 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.

Ecolab Q3 Earnings Miss Estimates, 2019 EPS View Slashed
 
Ecolab reported third-quarter 2019 adjusted EPS of $1.71, missing the Zacks Consensus Estimate by a penny. Adjusted EPS rose 11.8% on a year-over-year basis.
 
The company’s quarterly net sales amounted to $3.82 billion, up 1.9% from the year-ago quarter number. However, net sales lagged the Zacks Consensus Estimate of $3.89 billion.
 
Segmental Analysis
 
Global Industrial
 
Sales at the segment grew 5.2% year over year to $1.42 billion, driven by major growth in the Water, Food & Beverage and Life Sciences units. Geographically, all regions showed impressive sales growth in the quarter.
 
Global Institutional
 
Sales improved 4% year over year to $1.36 billion, led by robust growth in the Specialty business. Sales at the segment showed solid growth across all geographies.
 
Global Energy
 
Sales at the segment dropped 2.7% year over year to $836.5 million. Per management, upstream sales dropped slightly owing to a significant decline in well-stimulation business. However, the decline was offset by impressive growth in production sales. Downstream sales were soft in the quarter as well.
 
Other
 
Sales rose 6.8% year over year to $242.8 million, reflecting strong gains in both Pest Elimination and Colloidal Technologies across all geographies.
 
Margin Analysis
 
Ecolab registered adjusted gross profit of $1.62 billion, up 4% year over year. As a percentage of revenues, adjusted gross margin in the third quarter was 42.5%, up 90 basis points (bps).
 
Adjusted operating income in the quarter was $659.3 million, up 10.7% year over year. Adjusted operating margin in the quarter was 17.3%, which expanded 140 bps year over year. Per management, the upside in margins was led by double-digit Industrial and Energy segment income growth.
 
Guidance
 
For 2019, Ecolab expects adjusted EPS within $5.80-$5.90, calling for 10-12% growth over 2018. The projected band is lower than the previously communicated range of $5.80-$6.00.
 
Foreign currency translation is expected to have a 13-cent unfavorable impact on adjusted EPS.
 
Adjusted gross margin is expected to be 42% of net sales.
 
For the fourth quarter of 2019, Ecolab expects adjusted EPS within $1.64-$1.74, mirroring year-over-year growth of 6-13%.
 
Foreign currency translation is expected to have a 2-cent unfavorable impact on adjusted EPS.
 
Adjusted gross margin is expected to be 42% of quarterly sales.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, 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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