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Ecolab (ECL) Misses Q4 Earnings & Sales, FY16 View Dull

Zacks Equity Research

Ecolab Inc. ECL reported adjusted earnings (excluding special gains, charges and tax items) of $1.22 per share in the fourth quarter of 2015 which missed the Zacks Consensus Estimate by a couple of cents.

Earnings per share (EPS) increased 2% from the year-ago quarter primarily buoyed by raw material cost savings, cost efficiency programs, synergies and a lower tax rate, which more than offset strong currency headwinds (13 cents).

Quarter Details

Sales declined 7% year over year to $3.41 billion in the quarter, which missed the Zacks Consensus Estimate of $3.47 billion. On a fixed currency basis after adjusting for acquisitions, sales decreased 1% on a year-over-year basis.

Global Industrial segment sales grew 4% year over year to almost $1.27 billion at fixed currency, driven by the Food & Beverage operating units. Regionally, Latin America and Europe reported strong sales growth, with good gains in Middle East & Africa (MEA) and moderate growth in North America.

Global Institutional segment sales increased 5% to $1.14 billion, led by strong growth in the institutional business. Sales performance has been strong in most of the regions.

Global Energy segment sales declined 14% to $952 million in the reported quarter. Sales growth in the downstream business was more than offset by a significant decline in the well stimulation business and a moderate decrease in our production business.

Sales from the Other segment climbed 7% year over year to $198 million.

Operating income (excluding special gains and charges) at fixed currency increased 8% from the year-ago quarter to $590 million. Operating profits at the Global Industrial, Global Institutional and Other segments improved 22%, 6% and 27%, respectively. Meanwhile, Global Energy segment’s operating profit declined 1% on a year-over-year basis.

Outlook

For first-quarter 2016, Ecolab projects adjusted gross margin at approximately 47%. Selling, general & administrative (SG&A) expenses, as a percentage of sales, are expected to be approximately 35%. Interest expenses are projected at around $65 million.

Adjusted EPS is estimated between 73 cents and 80 cents. Unfavorable foreign currency is expected to affect EPS by 11 cents.

For 2016, Ecolab expects adjusted gross margin in the range of 47% to 48%. SG&A expenses, as a percentage of sales, are projected at approximately 32%. Meanwhile, interest expense is forecasted at around $270 million. Unfavorable foreign exchange rate is expected to hurt sales by 6%.

Ecolab expects adjusted EPS in the range of $4.35 to $4.55. The current guided range reflects a 9% to 13% year-over-year increase. Unfavorable foreign currency and Venezuela deconsolidation is likely to affect EPS by 35 cents to 40 cents.

Ecolab expects mid-single digit fixed currency sales growth at the Institutional, Industrial and Other segments. Energy segment sales are expected to remain modestly below the 2015 level. The company expects to repurchase approximately $700 million worth of shares in 2016.

Zacks Rank & Stocks to Consider

Currently, Ecolab carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the industry are Daqo New Energy Corp. DQ, Flexible Solutions International FSI and American Vanguard AVD. While Daqo New Energy sports a Zacks Rank #1 (Strong Buy), Flexible Solutions and American Vanguard carry a Zacks Rank #2 (Buy).

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