Ecolab Inc. (NYSE:ECL) reported first-quarter 2017 adjusted earnings of 91 cents per share, which beat the Zacks Consensus Estimate by 3.4%. Earnings also rose 13.8% on a year-over-year basis.
Ecolab carries a Zacks Rank #3 (Hold).
Adjusted quarterly net sales were $3.47 billion, up 9.8% from the year-ago quarter. Also, net sales beat the Zacks Consensus Estimate of $3.37 billion.
Segmental Analysis
Global Industrial
Sales in the segment grew 5% year over year to almost $1.24 billion. The upside was driven by major gains in Water, Food & Beverage and Life Sciences unit.
Europe, North America and Latin America led the Global Industrial regional growth.
However, acquisition-adjusted fixed currency operating income in the segment decreased 5% on a year-over-year basis due to higher delivered product costs and massive investments in the business.
Ecolab Inc. Price and Consensus
Global Institutional
Sales increased 9% to $1.22 billion, led by strong growth in the Specialty business line. The segment witnessed solid growth in North America and Asia Pacific.
Acquisition adjusted fixed currency operating income rose 4% year over year.
Global Energy
Sales rose 9% to $847.1 million owing to strong growth in the well stimulation business and modest gains in the downstream business.
Acquisition-adjusted fixed currency operating income remained flat year over year.
Other
Sales declined 11% year over year to $197.4 million. However, sales in this segment witnessed robust growth in North America.
Notably, the Other segment now has Ecolab’s Colloidal Technologies unit. The unit was previously part of the Global Industrial Reportable segment.
Acquisition adjusted fixed currency sales rose 8% year over year, as the Pest Elimination unit within the segment registered solid growth in North America and Europe.
Margin Analysis
The company’s margins in the quarter under review remained under pressure owing to higher delivered-product costs.
As a percentage of revenues, Ecolab registered adjusted gross margin of 40% in the first quarter, down 150 basis points (bps) on a year-over-year basis.
Adjusted operating margin in the first quarter contracted 60 bps to 10.9% of net revenues.
However, Ecolab remains hopeful of the latest pricing initiatives that it has undertaken. Per management, these are expected to boost margins in the coming quarters.
View Up
Ecolab expects full-year 2018 adjusted earnings in the range of $5.30 to $5.50 per share, up from the previously issued range of $5.25-$5.45. Notably, this represents an increase in the band of 13-18% year over year. Notably, the Zacks Consensus estimate is currently pegged at $5.35 per share.
As a percentage of revenues, adjusted gross margin is expected to be 42% of net revenues, which is significantly below the previously issued range of 47-48%.
For the second quarter of 2018, Ecolab expects adjusted earnings in the range of $1.23 to $1.29 per share. The current outlook reflects an increase of 10-15% year over year.
Adjusted gross margin for the second quarter of 2018 is expected to be 42% of net revenues.
In Conclusion
Ecolab ended the first quarter on a favorable note, beating the Zacks Consensus Estimate on both counts. Despite strength in the Pest Elimination business, the Other segment declined year over year on a reported basis. Ecolab operates in highly competitive markets, which might mar prospects over the long haul.
We believe that volatility in foreign currency exchange rates will remain a significant headwind for the company. Ecolab faces pricing pressure in the Energy segment, which is likely to hurt profits.
On the brighter side, a strong guidance instills optimism on the stock. Further, Europe, North America and Latin America led Global Industrial regional growth in the quarter. Strength in the Global Institutional segment led by growth in the Specialty and Healthcare business lines is also a positive. A robust product portfolio and an expanding customer base are likely to drive organic sales over the long haul.
Q1 Earnings of MedTech Majors at a Glance
A few other top-ranked stocks in the broader medical space, which reported solid earnings this season are, Baxter International Inc. (NYSE:BAX) , Varian Medical Systems, Inc. (NYSE:VAR) and Intuitive Surgical, Inc. (NASDAQ:ISRG) .
While Intuitive Surgical and Varian sport a Zacks Rank #1 (Strong Buy), Baxter carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical reported adjusted earnings of $2.44 per share, which surpassed the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, which beat the Zacks Consensus Estimate by 10.6%.
Varian reported second-quarter fiscal 2018 adjusted earnings of $1.15 per share, which beat the Zacks Consensus Estimate of $1.06. Adjusted earnings improved 27.8% on a year-over-year basis.
Baxter reported first-quarter 2018 adjusted earnings per share of 70 cents, which beat the Zacks Consensus Estimate by 12.9% and improved from the year-ago quarter’s figure of 58 cents.
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Ecolab Inc. (ECL): Free Stock Analysis Report
Varian Medical Systems, Inc. (VAR): Free Stock Analysis Report
Intuitive Surgical, Inc. (ISRG): Free Stock Analysis Report
Baxter International Inc. (BAX): Free Stock Analysis Report
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