A month has gone by since the last earnings report for Ecolab (ECL). Shares have added about 1.5% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Ecolab Q2 Earnings Beat Estimates, 2019 Guidance Retained
Ecolab reported second-quarter 2019 adjusted EPS of $1.42, beating the Zacks Consensus Estimate by a penny. Its EPS rose 11.8% on a year-over-year basis.
The company’s quarterly net sales amounted to $3.76 billion, up 1.9% from the year-ago quarter number. However, net sales lagged the Zacks Consensus Estimate of $3.78 billion.
Sales at the segment grew 4% year over year to $1.38 billion, driven by major growth from the Water and Life Sciences units. Geographically, all regions showed impressive sales growth in the quarter.
Sales improved 1.2% year over year to $1.31 billion, led by robust growth in the Specialty business. Sales for the segment showed solid growth across all geographies.
Sales at the segment edged down 0.9% year over year to $837.3 million. Per management, the upstream sales were flat, owing to a decline in well-stimulation business. However, the decline was offset by impressive growth in production sales. Downstream sales showed solid growth in the quarter.
Sales rose 4.1% year over year to $229.5 million, reflecting strong gains in both Pest Elimination and Colloidal Technologies across all geographies.
Ecolab registered gross profit of $1.56 billion, up 0.5% year over year. As a percentage of revenues, gross margin in the second quarter was 41.3%, down 50 basis points (bps) year over year. On an adjusted basis, gross margin in the quarter was 41.5%, down 30 bps.
Adjusted operating income in the quarter was $566 million, up 14.8% year over year. Adjusted operating margin in the quarter was 14.8%, which expanded 120 bps year over year.
Ecolab kept its earlier-provided guidance for 2019.
Adjusted EPS is expected to be $5.80-$6.00, suggesting 10-14% rise over 2018 reported figure.
However, it expects foreign currency translation to have an unfavorable impact of 11 cents on EPS.
Adjusted gross margin is expected to be 42%.
For the third quarter of 2019, Ecolab expects EPS to be $1.65-$1.75, indicating a year-over-year improvement of 8-14%.
Unfavorable foreign exchange rates are expected to dent the bottom line by 2 cents in the third quarter.
Adjusted gross margin is expected to be 42-43%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Ecolab has a nice Growth Score of B, a grade with the same score on the momentum front. However, 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Ecolab has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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