Ecolab Inc. (ECL) is scheduled to report third-quarter 2014 results before the opening bell on Oct 28. In the last reported quarter, Ecolab recorded a positive earnings surprise of 0.98%, highlighting double-digit year-over-year growth on the back of robust sales and operating margin gains.
Let’s see how things are shaping up for this announcement.
Factors at Play
Ecolab has been delivering considerable earnings growth over the past few quarters, driven by improved volume and pricing, product launches, account gains, synergies and cost-saving actions. The company is also relentlessly focusing on top-line growth, margin expansion and efficiency improvement in order to boost profits as well as drive merger synergies.
Ecolab has a large base of recurring revenues and industry-leading technologies along with excellent field service to support long-term growth. Continued investments in key growth businesses should also help sustain the company’s technology and service leadership.
For the third quarter of 2014, Ecolab expects adjusted earnings per share in the range of $1.18–$1.22, reflecting a 13–17% rise from $1.04 recorded in the comparable quarter of 2013.
Meanwhile, for full-year 2014, Ecolab raised its adjusted earnings per share guidance to $4.14–$4.20 from $4.10–$4.20. The upward revision reflects a 17% to 19% rise over the prior-year quarter figure.
While we are encouraged with Ecolab’s growth-oriented outlook for the year, we remain cautious about aggressive competition. Moreover, challenging economic and market trends will likely pose near-term headwinds for the company.
Earnings Whispers
Our proven model does not conclusively show that Ecolab is likely to beat earnings this quarter as it does not have the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or at least 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%, as both these estimates stand at $1.21.
Zacks Rank: Ecolab’s Zacks Rank #3 (Hold) when combined with an ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat:
Hospira Inc. (HSP) with an earnings ESP of 7.55% and a Zacks Rank #3 (Hold).
Heartware International Inc. (HTWR) with an earnings ESP of 21.21% and a Zacks Rank #3 (Hold).
Hologic Inc. (HOLX) with an earnings ESP of 5.41% and a Zacks Rank #3 (Hold).
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