Ecolab Beats by a Penny - Analyst Blog

Leading provider of cleaning and sanitation products Ecolab Inc. (ECL) posted third-quarter fiscal 2010 adjusted (excluding special gains and charges) earnings of 66 cents, beating the Zacks Consensus Estimate of 65 cents while surpassing the year-ago earnings of 61 cents.

Net income soared 20% year-over-year to a record $174 million (or 74 cents a share). Net sales edged up 1% year-over-year (up 3% at constant currency rates) to $1.56 billion, narrowly missing the Zacks Consensus Estimate of $1.59 billion.

The results were driven by strong performances across Asia-Pacific and Latin American operations as well as healthy contribution from the U.S. Cleaning & Sanitizing business. The company's Kay business, which provides expertise on food safety for quick service restaurants, also contributed to the growth. Currently exchange translation had no material impact on the results.

Segment Results  

Revenues from Ecolab's US Cleaning & Sanitizing business rose 4% year-over-year to $719 million. Sales at the US Other Services segment were stable year-over-year at $118 million. Revenues (at constant currency) from the company's International operations grew 3% year-over-year to $775 million.

Margins

Operating margin increased to 15.7% from 14.4% a year-ago, helped by effective cost-management and operational efficiency. Gross margin narrowly improved to 51.1% from 50.6% a year-ago.

Financial Position

Ecolab exited the quarter with cash and cash equivalents of $168.4 million, up 57% year-over-year. Long-term debt declined 23.8% year-over-year to $647.3 million. During the quarter, the company bought back 2.9 million shares under its existing share repurchase program.

Outlook

Ecolab has tweaked its earnings forecast for fiscal 2010. The company now expects adjusted earnings per share in the range of $2.22 to $2.24 versus the earlier forecast of $2.21 to $2.26. The company expects special charges of 3−4 cents for the year.

For the fourth quarter, Ecolab expects adjusted earnings per share in the range of 59 cents to 61 cents. The current Zacks Consensus Estimate for the fourth quarter and fiscal 2010 are 62 cents and $2.24, respectively. The company expects sustained revenue growth at constant currency rates. Moreover, currency exchange translation has been forecasted to unfavorably affect the top line for the fourth quarter and modestly impact earnings.

Although we are impressed by Ecolab's strong international presence, we remain cautious about intense competition and impact of foreign exchange headwinds on overseas sales.  We currently have a Neutral recommendation for Ecolab.