Ecolab Inc. (ECL) reported adjusted earnings (excluding special gains and charges and tax benefits) of $1.21 per share, in line with the Zacks Consensus Estimate. However, earnings per share (EPS) increased 16.3% from the year-ago quarter number buoyed by robust sales growth.

Ecolab, Inc. - Earnings Surprise | FindTheBest

Quarter Details

Sales (at constant currency) increased 6% year over year to $3.69 billion in the quarter, but missed the Zacks Consensus Estimate. The year-over-year growth was driven by robust performance across all segments.

Global Industrial segment sales grew 3% year over year to $1.25 billion, driven by solid gains in Latin America. Global Institutional segment sales increased 4% to $1.13 billion, led by strong sales growth in specialty business.

Global Energy segment sales spiked 14% year over year to $1.09 billion in the reported quarter, driven by strong performance in the upstream business. Sales from the Other segment grew 7% year over year to $191 million. Robust performance from pest elimination and equipment care businesses primarily drove results in the quarter.

Selling, general & administrative expense (SG&A) increased 3% from the year-ago quarter to $1.15 billion.

Operating income including special gains and charges jumped 20% from the year-ago quarter to $571.4 million. Global Industrial, Global Institutional and Global Energy segment operating profit increased 2%, 5% and 39%, respectively. Operating income from the Other segment surged 15% to $33 million.

Ecolab exited the third quarter with cash and cash equivalents of $197.8 million. Total debt was approximately $6.80 billion as of Sep 30.

Outlook

For fourth quarter of 2014, Ecolab expects adjusted gross margin to range from 46% to 47%. SG&A as percentage of sales is expected to be in the band of 31% to 32%. Interest expense is forecasted between $60 million and $65 million.

Adjusted EPS is estimated from $1.18 to $1.22. At mid-point, EPS is 15.4% higher than $1.04 reported in the year-ago quarter. Currently, the Zacks Consensus Estimate is pegged at $1.21, which exceeds the mid-point of the guided range.

For 2014, Ecolab expects adjusted gross margin to be in the range of 46% to 47%. SG&A as percentage of sales is projected to be approximately 32%. Interest expense is forecasted in the range of $250 to $260 million.

Adjusted EPS is likely to figure in the range of $4.16 to $4.20. At mid-point, EPS is 18.1% higher than $3.54 reported in 2013. Currently, the Zacks Consensus Estimate is pegged at $4.18, which coincides with the mid-point of the guided range.

Our Take

Ecolab’s third quarter result fails to impress us. We believe aggressive competition from the likes of ServiceMaster (SERV) will continue to hurt Ecolab’s results, going forward. Moreover, challenging economic and market trends along with unfavorable internal issues will be likely near-term headwinds for the company.

ECL currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are Minerals Technologies (MTX) and Globe Specialty Metals (GSM). All of them carry a Zacks Rank #1 (Strong Buy).

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