Ecolab (ECL) Down 6.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Ecolab (ECL). Shares have lost about 6.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ecolab due for a breakout? 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 drivers.

Ecolab Q4 Earnings & Revenues Beat Mark, Margins Down

Ecolab reported fourth-quarter 2021 adjusted earnings per share of $1.28, up 4.1% year over year. The bottom line exceeded the Zacks Consensus Estimate by 0.8%.

GAAP earnings per share for the quarter was $1.04, flat compared with the year-earlier figure.

Full-year adjusted earnings per share was $4.69, reflecting a 16.7% increase from the year-ago period. The metric was in line with the Zacks Consensus Estimate.

Revenue Details

Revenues grossed $3.36 billion in the reported quarter, up 9.8% year over year. The metric surpassed the Zacks Consensus Estimate by 5.3%.

Ecolab’s fixed currency sales increased 10% and acquisition adjusted fixed currency sales increased 9% from the prior-year period’s level.

The year-over-year uptick in the fourth-quarter top line was driven by double-digit gains in Ecolab’s Institutional & Specialty, and Other segments, and continued strong growth in the company’s Industrial segment. The company also recorded substantial volume and pricing momentum, largely offset by significant cost increases of raw materials and freight.

Full-year revenues were $12.73 billion, reflecting a 7.9% improvement from the year-ago period. The metric topped the Zacks Consensus Estimate by 0.9%.

Segmental Analysis

The Global Industrial segment’s fixed currency sales of $1.69 billion reflect 7.9% reported growth whereas acquisition-adjusted fixed currency sales inched up 7% year over year. The improvement in the acquisition-adjusted fixed currency sales was driven by strong growth in Water, Paper and Downstream, led by new business wins and accelerated pricing, along with good gains in Food & Beverage.

The Global Institutional & Specialty arm’s fixed currency sales of $1.06 billion reflect reported growth of 18.9%, whereas acquisition-adjusted fixed currency sales surged 19% year over year. The improvement in the Institutional division reflected improved volume, further good new business wins, gains from Ecolab Science Certified programs, and new innovation and pricing despite a stalled recovery in restaurant and lodging activity compared with the third quarter due to COVID-related impacts. Specialty sales increased modestly as strong quickservice sales more than offset lower food retail sales, in part due to customer staffing shortages.

The Global Healthcare and Life Sciences’ fixed currency sales of $308 million declined 6% while acquisition-adjusted fixed currency sales fell 13% year over year.

The Other segment’s fixed currency sales of $322.7 million improved 12.8% on a reported basis while acquisition-adjusted fixed currency sales jumped 13% year over year. The uptick in acquisition-adjusted fixed currency sales was led by strong growth across all divisions, including Pest Elimination, Textile Care and Colloidal Technologies businesses.

Margin Analysis

In the quarter under review, Ecolab’s gross profit improved 2.8% to $1.32 billion. Gross margin contracted 264 basis points (bps) to 39.3%.

Selling, general and administrative expenses rose 7.2% to $867.9 million, year over year.

Adjusted operating profit totaled $453.6 million, declining 4.6% from the prior-year quarter’s level. Adjusted operating margin in the quarter also contracted 203 bps to 13.5%.

Financial Position

Ecolab exited full-year 2021 with cash and cash equivalents of $359.9 million compared with $1.26 billion at the end of 2020. Total debt at the end of 2021 was $8.76 billion compared with $6.69 billion at the end of 2020.

Meanwhile, Ecolab has a consistent dividend-paying history, with five-year annualized dividend growth being 6.38%.

Guidance

Ecolab has not initiated either quarterly or full-year 2022 outlook due to continued uncertainty surrounding the COVID-19 pandemic besides the full scope of its impact on the global economy and the duration of the same.

However, the company expects the first quarter to register healthy sales growth and an almost flat year-over-year earnings per share comparison impacted by continued high raw material and freight costs.

For full-year 2022, Ecolab believes its sales, pricing and cost efficiency actions will enable it to deliver continued strong sales gains with adjusted earnings per share growth reaching low-teens levels, assuming once again that inflation and supply constraints ease as the year progresses. The company also continues to expect that the impact of Purolite, including 26 cents per share of transaction-related amortization, will be neutral to 2022 adjusted earnings per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -11.28% due to these changes.

VGM Scores

Currently, Ecolab has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Ecolab has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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