Back to top

Image: Bigstock

Why Is Ecolab (ECL) Up 8.2% Since Last Earnings Report?

Read MoreHide Full Article

It has been about a month since the last earnings report for Ecolab (ECL - Free Report) . Shares have added about 8.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ecolab due for a pullback? 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 Q2 Earnings Surpass Estimates, Margins Rise

Ecolab reported second-quarter 2024 adjusted earnings per share of $1.68, up 35.5% year over year. The bottom line exceeded the Zacks Consensus Estimate by 1.2%.

GAAP earnings per share for the quarter was $1.71, up 48.7% year over year.

Revenue Details

Revenues grossed $3.99 billion in the reported quarter, up 3.5% year over year. The metric missed the Zacks Consensus Estimate by 1.1%.

Ecolab’s organic sales increased 3.8% from the prior-year period’s level.

The year-over-year uptick in the second-quarter organic sales was driven by strong growth in the Institutional & Specialty and Pest Elimination segments and modest growth in the Industrial segment.

Segmental Analysis

Effective in the first quarter of 2024, Ecolab has modified its segment reporting, where Global Pest Elimination is now a standalone reportable segment. This is expected to provide improved transparency on this high-growth and high-margin business.

In May, Ecolab has reached a definitive agreement to sell its global surgical solutions business to Medline. The sale is expected to close in the second half of 2024, subject to regulatory clearances and other customary closing conditions. However, Ecolab will continue to serve hospitals through its infection prevention and instrument reprocessing businesses.

The Global Industrial segment’s fixed currency sales of $1.96 billion reflect 2.6% reported growth year over year. Organic sales increased 1.8% year over year, driven by accelerating Water sales growth. Water’s performance was led by strong growth in downstream and light water, where global high-tech continues to grow in double-digits.

Food & Beverage sales reflected good new business wins. Paper sales were stable compared to last year’s performance and continued to improve sequentially as good new business offset soft but stable customer demand.

The Global Institutional & Specialty arm’s fixed currency sales of $1.37 billion reflect reported growth of 7.8%. Organic sales increased 6.7% year over year, with double-digit growth in both the Institutional and Specialty divisions.

The Global Healthcare and Life Sciences arm’s fixed currency sales of $395 million declined 0.1% both on a reported and organic basis. Per management, year-over-year organic sales declined as lower Healthcare sales were partially offset by growth in Life Sciences. Life Sciences’ performance improved and more than offset continued soft short-term industry trends.

The Global Pest Elimination segment’s fixed currency sales of $297.1 million improved 10.2% on a reported basis. Organic sales increased 9.4% 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 14.9% to $1.74 billion. The gross margin expanded 440 basis points (bps) to 43.8%.

Selling, general and administrative expenses rose 6.3% to $1.08 billion year over year.

Adjusted operating profit totaled $669.8 million, increasing 30.4% from the prior-year quarter’s level. Adjusted operating margin in the quarter also expanded 350 bps to 16.8%.

Financial Position

Ecolab exited second-quarter 2024 with cash and cash equivalents of $384 million compared with $479.9 million at the first quarter of 2024-end. Total debt at the second-quarter end was $7.54 billion, unchanged from the first quarter of 2024.

Net cash provided by operating activities at the second quarter of 2024-end was $611.1 million compared with $573.4 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 third quarter of 2024 and upped its outlook for the full year.

The company expects its adjusted earnings per share for the third quarter to be in the range of $1.75-$1.85, up 14-20% from the year-ago period. The Zacks Consensus Estimate for third-quarter earnings per share is currently pegged at $1.78.

For 2024, Ecolab now expects its adjusted earnings per share in the range of $6.50-$6.70 (reflecting an uptick of 25-29% from the comparable 2023 period), up from the previous outlook of $6.40-$6.70. The Zacks Consensus Estimate is currently pegged at $6.58 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

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. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile 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 looks promising. 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, PPG Industries (PPG - Free Report) , has gained 0.5% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.

PPG Industries reported revenues of $4.79 billion in the last reported quarter, representing a year-over-year change of -1.6%. EPS of $2.50 for the same period compares with $2.25 a year ago.

For the current quarter, PPG Industries is expected to post earnings of $2.16 per share, indicating a change of +4.4% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.2% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for PPG Industries. Also, the stock has a VGM Score of C.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Ecolab Inc. (ECL) - free report >>

PPG Industries, Inc. (PPG) - free report >>

Published in