Ecolab (ECL) Beats Q1 Earnings & Sales, FY16 View Intact

Ecolab Inc. (NYSE:ECL) reported adjusted earnings (excluding special gains, charges and tax items) of 77 cents per share in the first quarter of 2016 which beat the Zacks Consensus Estimate by a penny.

However, earnings decreased 4% from the year-ago quarter primarily due to strong currency headwinds (11 cents).

Quarter Details

Sales declined 6% year over year to $3.10 billion in the quarter which beat the Zacks Consensus Estimate of $3.08 billion. On a fixed currency basis after adjusting for acquisitions, sales decreased 2% on a year-over-year basis.

Global Industrial segment sales grew 4% year over year to almost $1.08 billion at fixed currency. Regionally, Latin America reported strong sales growth, with modest gains in Europe, North America and Asia Pacific.

Global Institutional segment sales increased 8% to $1.05 billion, led by strong growth in the institutional and Specialty businesses.

Global Energy segment sales declined 15% to $760 million in the reported quarter. Sales growth in the downstream business was more than offset by a significant decline in the upstream business.

Sales from the Other segment climbed 9% year over year to $188 million.

Operating income (excluding special gains and charges) at fixed currency increased 6% from the year-ago quarter to $374 million. Operating profits at the Global Industrial, Global Institutional and Other segments improved 25%, 18% and 30%, respectively. Meanwhile, Global Energy segment’s operating profit declined 15% on a year-over-year basis.

Outlook

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%. Interest expenses are projected at around $67 million.

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.

For 2016, Ecolab expects adjusted gross margin in the range of 47% to 48%. SG&A expenses, as a percentage of sales, are projected at approximately 32%. Meanwhile, interest expense is forecasted at around $270 million.

Ecolab reiterated its adjusted earnings guidance range at $4.35 to $4.55. The current guided range reflects a 9% to 13% year-over-year increase. Venezuela deconsolidation is likely to affect earnings by 17 cents.

Ecolab expects mid-single digit acquisition adjusted fixed currency sales growth at the Institutional, Industrial and Other segments. Energy segment sales are expected to decline in the mid to upper single digit range. The company expects to repurchase approximately $700 million worth of shares in 2016.

Zacks Rank & Stocks to Consider

Currently, Ecolab carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the industry are Daqo New Energy Corp. (NYSE:DQ) , KMG Chemicals (NYSE:KMG) and Chemtura Corporation (NYSE:CHMT) . All the three stocks sport a Zacks Rank #1 (Strong Buy).