Ecolab Retained at Neutral - Analyst Blog
06 Octubre 2011 - 6:40AM
Zacks
We reaffirm our Neutral recommendation for leading cleaning and
sanitation products company Ecolab Inc (ECL). The
company’s second-quarter fiscal 2011 earnings per share of 64 cents
met the Zacks Consensus Estimate while profit fell as charges
associated with
the European restructuring more than offset the double-digit
growth in the top line.
Sales jumped roughly 12% year over year, boosted by healthy
contributions from the company’s U.S. Cleaning & Sanitizing
business as well as Asia-Pacific and Latin American operations,
supported by acquisitions and favorable currency exchange
translation. The Minnesota-based company raised its earnings
forecast for fiscal 2011.
Ecolab leads in cleaning, sanitizing, pest elimination and food
safety solutions with annual sales of roughly $6 billion. The
company is investing in strategic areas such as product innovation
and sales organization while rationalizing operating costs to
enhance margins.
We believe Ecolab’s strong international presence will continue
to boost sales in the upcoming reporting periods, buoyed by
emerging markets. Asia-Pacific and Latin America represent the key
growth engine for the company’s overseas operation. Moreover, an
uptick in hotel lodging demand and favorable market trends
across food and beverage and healthcare segments represent
tailwinds.
Ecolab is also active on the acquisition front and continues to
explore opportunities to expand into emerging markets for growth.
The company’s move to buy Nalco Holding (NLC)
represents a major step, enabling it to bolster its water
management business.
To drive efficiency and profitability, Ecolab is restructuring
its European business. The company expects savings from the
restructuring to benefit its second-half 2011 results, including
opportunities for meaningful margin expansion. Moreover, Ecolab
remains committed to deliver incremental returns to investors
leveraging a solid balance sheet and healthy cash flows.
While Ecolab’s strong international exposure (especially in
emerging markets) and recovery across its end-markets is
encouraging, aggressive competition remains a concern. The
company’s U.S. Cleaning & Sanitizing and International
divisions face stiff competition from Clorox (CLX)
and Church & Dwight (CHD).
Although Ecolab is employing effective pricing strategies to
offset the raw material inflation, raw material costs are
expected to remain a headwind in the third quarter. We also remain
aware of the potential dilutive impact of the hefty
restructuring expenses on the company’s bottom line.
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