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Ecolab’s (ECL - Free Report) fourth-quarter fiscal 2011 adjusted earnings per share of 70 cents matched the Zacks Consensus Estimate. Profit tumbled 32% year over year as double-digit growth in sales was masked by charges associated with the company’s $8.3 billion acquisition of Illinois-based water treatment company Nalco Holding and restructuring program.

Highlights from the Quarter

Net sales surged roughly 17% year over year to a record $1,845.3 million, yet missed the Zacks Consensus Estimate of $1,934 million. Sales were boosted by the company’s Food & Beverage and Kay businesses coupled with the contributions from the Latin American operation and Nalco acquisition.

Gross margin fell year over year on account of inventory step-up cost associated with the Nalco buyout while operating margin was hit by the hefty restructuring and acquisition-related charges.

The Minnesota-based company reaffirmed its earnings forecast for fiscal 2012 and initiated guidance for the first quarter which was below the Zacks Consensus Estimate.

We have discussed the quarterly results at length here: Ecolab's EPS Meets, Sales Lag.

Agreement – Estimate Revisions

Estimate for fiscal 2012 is evenly balanced with 2 analysts (out of 15) having lowered their forecasts over the past month with a couple of positive revisions. Over the past week, there were 2 positive revisions accompanied by a single downward movement.

Estimate for first-quarter 2012 elicit a comprehensive downward drift with 5 analysts (out of 11) having slashed their forecasts over the last week and month with none moving in the opposite direction over these periods.

Estimates for fiscal 2013 are inclined towards the negative side with 4 analysts (out of 12) having trimmed their projections over the last 7 and 30 days with just one raising his/her forecast over these timelines.

Magnitude – Consensus Estimate Trend

Given the lack of directional pressure, estimate for fiscal 2012 has remained static (at $3.02) over the last 7 and 30 days. However, due to the downward revisions, estimates for first-quarter 2012 and fiscal 2013 have been reduced by 6 cents each over the past week and month.

Our Take

Ecolab leads in cleaning, sanitizing, pest elimination and food safety solutions with annual sales of roughly $6.8 billion. The company is investing in strategic areas such as product innovation and sales organization while rationalizing operating costs to enhance margins.

We believe that Ecolab’s strong international presence will continue to boost its growth in the upcoming reporting periods, buoyed by emerging markets. Asia-Pacific and Latin America represent the key growth engine for the company’s overseas operations. Moreover, the uptick in hotel lodging demand and favorable food and beverage market trends represents healthy tailwinds.

Management remains optimistic regarding improvement in end-market demand, its ability to attract new customers, and opportunities for greater customer penetration through new product development. Ecolab is also active on the acquisition front and continues to explore opportunities to expand into emerging markets.

To drive efficiency and profitability, Ecolab is restructuring its European business. The restructuring, once completed, has been projected to fetch annual cost saving of more than $120 million.

Ecolab is also employing appropriate pricing strategy to offset higher delivered product costs. Moreover, the company remains committed to delivering incremental returns to investors leveraging a solid balance sheet and healthy cash flows.

Ecolab expects profit in the first quarter and fiscal 2012 to be boosted by higher sales volume, pricing, margin leverage, new products as well as synergies from acquisitions and restructuring.

However, we remain cautious about aggressive competition and the impact of foreign exchange movements on overseas sales. The company’s U.S. Cleaning & Sanitizing and International divisions face stiff competition from Clorox (CLX - Free Report) and Church & Dwight (CHD - Free Report) .

Moreover, raw material costs are expected to remain a headwind moving ahead. We are also aware of the dilutive impact of the restructuring expenses on the company’s bottom line. The company’s back-to-back acquisitions could also lead to substantial integration risk. As such, we remain Neutral on the stock, which is backed by a short-term Zacks #3 Rank (Hold).

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at

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