Earnings Scorecard: Ecolab - Analyst Blog
08 Noviembre 2011 - 9:45AM
Zacks
Ecolab’s (ECL) third-quarter fiscal 2011
earnings per share of 75 cents were in line with the Zacks
Consensus Estimate. Profit clipped 11% year over year as
double-digit growth in sales was eclipsed by charges associated
with the company’s European restructuring and acquisition.
Third Quarter Highlights
Revenues for the quarter shot up 11% year over year to $1,736.1
million, meeting the Zacks Consensus Estimate. Sales were boosted
by healthy growth at the Minnesota-based company’s Food &
Beverage business coupled with contributions from
Asia-Pacific, Canada and Latin American operations.
Acquisitions and new products also aided the growth.
Hefty restructuring charges contributed to the decline in
margins. The company tightened its earnings forecast for fiscal
2011. The adjusted earnings exclude charges associated with the
acquisition of Nalco Holding (NLC), which the
company expects to close in fourth-quarter 2011.
Ecolab expects profit in the fourth quarter to be boosted by
higher sales volume, pricing, margin leverage, new products as well
as synergies from acquisitions and European restructuring.
We have discussed the quarterly results at length here: Ecolab
Meets, Charges Hurts Profit.
Agreement – Estimate Revisions
Estimates
for Ecolab reflect bearish reactions from analysts to the
third quarter results. Out of 13 analysts covering the stock, 6
have truncated their forecasts for the fourth quarter over the past
month with no positive revisions.
Estimates for fiscal 2011 are inclined towards the negative side
with 4 (out of 15) analysts having lowered their projections over
the last 30 days with just one raising his/her forecast. The
bearishness, in part, reflects the company’s guidance revision.
There were, however, absolutely no movements in the estimates for
the fourth quarter and fiscal 2011 over the past week.
Magnitude – Consensus Estimate Trend
Given the directional pressure from the downward revisions,
estimate for fiscal 2011 has moved down by a penny over the last 30
days while remaining static over the past week. Estimate for the
fourth quarter (of 71 cents) has been torpid 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 billion. The
company is investing in strategic areas such as product innovation
and sales organization while rationalizing operating costs to
enhance margins. Moreover, Ecolab remains focused on bringing new
technologies aimed at reducing food safety risks.
Ecolab’s strong international presence has boosted its growth
and we believe will continue doing so 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.
The company’s move to buy Nalco Holding represents a strategic fit,
enabling it to bolster its water management business.
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. Moreover, Ecolab remains committed to delivering
incremental returns to investors leveraging a solid balance sheet
and healthy cash flows.
While we derive comfort from Ecolab’s strong international
exposure and recovery across its end-markets, we remain cautious
about aggressive competition and impact of foreign exchange
movements on overseas sales. 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 raw
material inflation, raw material costs are expected to remain a
headwind in 2011. We are also aware of the dilutive impact
of the hefty 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 supported by a short-term Zacks #3 Rank (Hold).
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, 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 http://www.zacks.com/education/.
CHURCH & DWIGHT (CHD): Free Stock Analysis Report
CLOROX CO (CLX): Free Stock Analysis Report
ECOLAB INC (ECL): Free Stock Analysis Report
NALCO HLDG CO (NLC): Free Stock Analysis Report
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