Ecolab Q2 Earnings Surpass Estimates, Margins Rise

Ecolab Inc. ECL 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 EPS 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 EPS outlook for the third quarter of 2024 and upped its outlook for the full year.

The company expects its adjusted EPS 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 EPS is currently pegged at $1.78.

For 2024, Ecolab now expects its adjusted EPS 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.

Our Take

Ecolab exited the second quarter of 2024 with mixed results. The company registered a robust year-over-year uptick in its top and bottom lines, along with solid performances across the majority of its segments. Lower delivered product costs, value-based pricing and volume growth during the quarter were encouraging.  New business wins were also promising for the stock.

Ecolab's decision to sell its Global Surgical Solutions business to transform its Global Healthcare business also raises our optimism. The expansion of both margins bodes well for the stock.

The decline in the Global Healthcare and Life Sciences arm's revenues was also discouraging. The company expects to face continued soft macro demand, raising our apprehension.

Zacks Rank and Key Picks

Ecolab currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Boston Scientific Corporation BSX, Hologic HOLX and Universal Health Services UHS.

Boston Scientific reported first-quarter 2024 adjusted EPS of 56 cents, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $3.86 billion surpassed the Zacks Consensus Estimate by 4.9%. It currently carries a Zacks Rank of 2 (Buy).

Boston Scientific has a long-term estimated growth rate of 12.5%. BSX's earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.5%.

Hologic, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 7.4%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 4.94%.

Hologic's shares have risen 0.3% year to date compared with the industry's 4.7% growth.

Universal Health Services has an Earnings ESP of +2.91% and a Zacks Rank of 1 at present. UHS has an estimated earnings growth rate of 30.5% for 2024.

UHS' earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 8.12%.

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