Can Ecolab (ECL) Spring An Earnings Surprise In Q2?

Ecolab Inc. (NYSE:ECL) is slated to announce second-quarter 2016 earnings results on Aug 2, 2016. Last quarter, the company reported earnings of 77 cents per share, which beat the Zacks Consensus Estimate by a penny.

Notably, Ecolab posted negative earnings surprise of 0.07% on an average over the last four quarters.

Let’s see how things are shaping up for this announcement.

Factors at Play

For second-quarter 2016, Ecolab projects adjusted gross margin at approximately 48%. Selling, general & administrative (SG&A) expenses, as a percentage of sales, are expected to be approximately 33%.

Adjusted earnings are estimated between $1.03 and $1.11 per share. Unfavorable foreign currency and the impact of Venezuelan deconsolidation are expected to affect earnings by 8 cents.

Despite these headwinds, we believe that a robust product portfolio, new product launches and an expanding customer base will drive organic sales.

Moreover, emerging markets hold promising prospects for Ecolab in the food & beverage business, which increased 19% in the first quarter of 2016. The company believes that food safety business has significant growth opportunities in these markets due to growing demand for better food quality.

Apart from food & beverage, Ecolab is expected to pursue acquisitions that will boost its market share in the water and healthcare business. Meanwhile, the realization of targeted synergies associated with acquisitions will help in margin expansion.

Earnings Whispers

Our proven model does not conclusively show that Ecolab is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Ecolab currently has an Earnings ESP of 1.85%. This is because the Most Accurate estimate of $1.10 is higher than the Zacks Consensus Estimate of $1.08.

Zacks Rank: Ecolab currently carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows these have the right combination of elements to post an earnings beat this quarter:

Nektar Therapeutics (NASDAQ:NKTR) , earnings ESP of + 50% and a Zacks Rank #1

Zoetis Inc (NYSE:ZTS) , earnings ESP of + 2.27% and a Zacks Rank #2.

CytRx Corporation (NASDAQ:CYTR) , earnings ESP of + 15% and a Zacks Rank #2.