It has been about a month since the last earnings report for Ecolab (ECL). Shares have lost about 1.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Ecolab due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Ecolab reported third-quarter 2024 adjusted earnings per share of $1.83, up 18.8% year over year. The bottom line beat the Zacks Consensus Estimate by 0.5%.
GAAP earnings per share for the quarter was $2.58, up 82.9% year over year.
Revenue Details
Revenues grossed $3.99 billion in the reported quarter, up 1% year over year. The metric missed the Zacks Consensus Estimate by 0.8%.
Ecolab’s organic sales increased 3.9% from the prior-year period’s level.
The year-over-year uptick in third-quarter organic sales was driven by strong growth in the Institutional & Specialty and Industrial segments.
Segmental Analysis
In August, Ecolab completed the sale of its global surgical solutions business to Medline for approximately $950 million in cash. However, Ecolab continues to serve hospitals through its infection prevention and instrument reprocessing businesses.
The Global Industrial segment’s fixed currency sales of $1.99 billion reflect 2.7% reported growth year over year. Organic sales increased 2% year over year, driven by accelerating Water sales growth. Water’s performance was led by strong growth in downstream and light water.
Food & Beverage sales reflected good new business wins. Paper sales were stable compared to year-ago quarter’s performance.
The Global Institutional & Specialty arm’s fixed currency sales of $1.40 billion reflect reported and organic growth of 6.8%. Growth in organic sales was driven by the Institutional and Specialty businesses’ robust performance, continuing to significantly outperform end-market trends.
The Global Healthcare and Life Sciences arm’s fixed currency sales of $334.1 million declined 18.2% on a reported basis, primarily due to the sale of the global surgical solutions business. However, organic sales increased 0.7% year over year due to the continued growth in Life Sciences and stable Healthcare sales.
The Global Pest Elimination segment’s fixed currency sales of $308.7 million improved 9% on a reported basis. Organic sales increased 7.8% year over year, driven by robust growth in food & beverage, restaurants, and food retail.
Margin Analysis
In the quarter under review, Ecolab’s gross profit improved 6.7% year over year to $1.74 billion. The gross margin expanded 230 basis points (bps) to 43.4%.
Selling, general and administrative expenses remained flat at $1.02 billion.
Adjusted operating profit totaled $713.1 million, increasing 17.2% from the prior-year quarter’s level. Adjusted operating margin in the quarter also expanded 250 bps to 17.9%.
Financial Position
Ecolab exited third-quarter 2024 with cash and cash equivalents of $1.26 billion compared with $384 million at the second quarter of 2024-end. Total debt at the third-quarter end was $7.62 billion compared with $7.54 billion at the second quarter of 2024-end.
Net cash provided by operating activities at the third quarter of 2024-end was $786.7 million compared with $787.7 million a year ago.
Meanwhile, Ecolab has a consistent dividend-paying history, with a five-year annualized dividend growth of 4.68%.
Guidance
Ecolab has provided its adjusted earnings per share outlook for the fourth quarter of 2024 and increased its earnings per share view for the full year.
The company expects its adjusted earnings per share for the fourth quarter to be in the range of $1.75-$1.85, up 13-19% from the year-ago period. The Zacks Consensus Estimate for fourth-quarter earnings per share is currently pegged at $1.81.
For 2024, Ecolab now expects its adjusted earnings per share in the range of $6.60-$6.70 (reflecting an uptick of 27-29% from the comparable 2023 period), up from the previous outlook of $6.50-$6.70. The Zacks Consensus Estimate is currently pegged at $6.65 per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
At this time, Ecolab has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ecolab has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Ecolab belongs to the Zacks Chemical - Specialty industry. Another stock from the same industry, Element Solutions (ESI), has gained 3.1% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.
Element Solutions reported revenues of $645 million in the last reported quarter, representing a year-over-year change of +7.6%. EPS of $0.39 for the same period compares with $0.36 a year ago.
Element Solutions is expected to post earnings of $0.36 per share for the current quarter, representing a year-over-year change of +12.5%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.5%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Element Solutions. Also, the stock has a VGM Score of D.
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