Ecolab’s (ECL) first-quarter fiscal 2011 results have met with strong bullish reactions from the analysts. The Minnesota-based leading cleaning and sanitation products maker posted adjusted earnings of 45 cents for the quarter which beat the Zacks Consensus Estimate by a penny and exceeded the year-ago earnings of 41 cents.
First Quarter Highlights
Profit (attributable to Ecolab) for the quarter fell 2% year over year to $93.6 million as top line growth was more than offset by charges associated with the company’s European restructuring and acquisition as well as higher tax. Revenues rose 6% to $1,518.3 million, also beating the Zacks Consensus Estimate.
The results were led by strong performances across the company’s core U.S. Cleaning & Sanitizing business as well as the Asia-Pacific and Latin American operations. Moreover, currency exchange translation had a favorable impact on the results. Ecolab has taken appropriate actions (including proper pricing) in the quarter to offset the rise in raw material costs. Moreover, the company raised its fiscal 2011 adjusted earnings per share guidance.
We have discussed the quarterly results at length here: Ecolab Beats, Guides Higher
Agreement – Estimate Revisions
Estimates for Ecolab are clearly on the upswing following the first quarter results, reflecting a comprehensive directional agreement. Out of 16 analysts, 11 have lifted their forecasts for fiscal 2011 over the past week and month with no reverse movements.
Similarly, 7 (out of 15) analysts have raised their estimates for fiscal 2012 over the corresponding periods with none moving in the opposite direction. The optimism reflects the better-than-expected first quarter results and the company’s positive guidance revision.
Magnitude – Consensus Estimate Trend
Given the strong directional pressure from the positive revisions, estimates for fiscal 2011 and 2012 have gone up by a couple of cents over the last 7 and 30 days. The current Zacks Consensus Estimate for fiscal 2011 is $2.51, representing an estimated annualized growth of 12.67%.
Ecolab Stays at “Neutral”
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.
Ecolab’s strong international presence has boosted its growth and we believe will continue doing the same in the upcoming reporting periods, buoyed by the emerging markets. Moreover, 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. Moreover, the company remains committed to delivering incremental returns to investors leveraging a solid balance sheet and healthy cash flow.
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.
Ecolab has raised its earnings forecast for fiscal 2011 and expects quarterly profits, moving forward, to be boosted by higher sales volume and pricing, synergies from acquisitions and the European restructuring.
While we are encouraged by Ecolab’s strong international exposure and recovery across its end-markets, we remain concerned about aggressive competition. The company’s U.S. Cleaning & Sanitizing and International divisions face stiff competition from Clorox (CLX) and Church & Dwight (CHD).
Moreover, raw material price fluctuations represent a headwind for Ecolab and its aggressive acquisition strategy has inherent integration risks. While Ecolab will eventually benefit from the meaningful savings from its European restructuring program, associated hefty expenses may be a drag on its bottom line. This is reflected in our Neutral recommendation on the stock.
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
Be the first to comment