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Ecolab (ECL) Up 4.9% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Ecolab (ECL). Shares have added about 4.9% 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 Q1 Earnings and Revenues Surpass Estimates

Ecolab Inc. reported first-quarter 2020 adjusted earnings per share of $1.13, beating the Zacks Consensus Estimate of $1.07. Further, adjusted earnings per share improved9.7% on a year-over-year basis.

The company’s quarterly net sales amounted to $3.58 billion, up 2.2% from the year-ago figure. Moreover, net sales outpaced the Zacks Consensus Estimate of $3.50 billion by 2.3%.

Segmental Analysis

With effect from the first quarter, the company has made modifications to the way it reports its segments, as discussed below.

Global Industrial

Sales at the segment grew 3.3% year over year to $1.44 billion, driven by solid growth in Food & Beverage and favorable performance in Downstream and Paper divisions.

Global Institutional

Sales improved 5.1% year over year to $1.07 billion, led by robust growth in the Specialty business.

Global Healthcare and Life Sciences

Sales at the segment rose 8.5% year over year to $246.2 million, driven by strong performance in Life Sciences.

Upstream Energy

Sales at the segment declined 3.3% year over year to $562.7 million. Per management, sales dropped owing to a significant decline in the well-stimulation business. However, higher production sales partially offset the downside.

Other

Sales increased 1.1% year over year to $277.8 million.

Margin Analysis

Ecolab registered adjusted gross profit of $1.47 billion, up 0.2% year over year. As a percentage of revenues, adjusted gross margin in the first quarter was 41.1%, up 60 basis points (bps).

Adjusted operating income in the quarter was $461.8 million, up 12.5% year over year. Adjusted operating margin in the quarter was 12.9%, which expanded 120 bps year over year.

Guidance

The company has suspended quarterly and full-year 2020 outlook due to the uncertainty surrounding the global pandemic and the duration of the same.

However, per management, sales in Healthcare & Life Sciences segment are anticipated to improve from the previous year. Modest pressure is estimated on Industrial segment businesses and a substantial amount of pressure on sales in Institutional and Other segments.

The pandemic’s impact on restaurant, hospitality, and entertainment is expected to result in a noticeable decrease for the Institutional division within the Institutional unit and Pest Elimination for the year and more substantially in the second quarter.

A much more significant impact from the COVID-19-induced crisis is projected to be witnessed in the second quarter. Nonetheless, the company anticipates to see gradual improvement in the second half with the start of recovery of markets and the demand for cleaning and sanitizing remaining above normal.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -28.04% due to these changes.

VGM Scores

At this time, Ecolab has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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