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Ecolab (ECL) Q3 Earnings Surpass Estimates, Margins Rise

Ecolab Inc. ECL reported third-quarter 2023 adjusted earnings per share (EPS) of $1.54, up 18.5% year over year. The bottom line exceeded the Zacks Consensus Estimate by 1.3%.

GAAP EPS for the quarter was $1.41, up 16.5% year over year.

Revenue Details

Revenues grossed $3.96 billion in the reported quarter, up 7.9% year over year. The metric missed the Zacks Consensus Estimate by 0.7%.

Ecolab’s organic sales increased 7% from the prior-year period’s level.

The year-over-year uptick in the third-quarter organic sales was driven by double-digit growth in the Institutional & Specialty segment and Pest Elimination division, solid growth in the Industrial segment and improved growth in the Healthcare & Life Sciences segment.

Segmental Analysis

The Global Industrial segment’s fixed currency sales of $1.83 billion reflect 3.6% reported growth year over year. Organic sales increased 4% year over year, driven by robust growth in Food & Beverage and Water. This more than offset the expected short-term decline in Paper sales, which continued to be impacted by soft industry demand.

The Global Institutional & Specialty arm’s fixed currency sales of $1.31 billion reflect reported growth of 12.3%. Organic sales increased 11% year over year, with both the Institutional and Specialty divisions growing double digits, reflecting additional pricing and new business gains.

The Global Healthcare and Life Sciences arm’s fixed currency sales of $400.7 million improved 11.3%. Organic sales growth of 11% reflected continued growth in Healthcare and improved Life Sciences sales growth. Healthcare’s improved underlying growth was driven by good pricing and new business gains, and the business also benefited from larger-than-normal surgical sales.

The Other segment’s fixed currency sales of $380.3 million improved 8.4% on a reported basis. Organic sales growth was 8%, driven by double-digit growth in Pest Elimination.

Ecolab Inc. Price, Consensus and EPS Surprise

Ecolab Inc. Price, Consensus and EPS Surprise
Ecolab Inc. Price, Consensus and EPS Surprise

Ecolab Inc. price-consensus-eps-surprise-chart | Ecolab Inc. Quote

Margin Analysis

In the quarter under review, Ecolab’s gross profit improved 18.1% to $1.63 billion. The gross margin expanded 357 basis points (bps) to 41.1%.

Selling, general and administrative expenses rose 16.9% to $1.02 billion year over year.

Adjusted operating profit totaled $602.7 million, increasing 20.3% from the prior-year quarter’s level. Adjusted operating margin in the quarter also expanded 158 bps to 15.2%.

Financial Position

Ecolab exited third-quarter 2023 with cash and cash equivalents of $1 billion compared with $554.2 million at the end of the second quarter. Total debt at the end of third-quarter 2023 was $8.616 billion compared with $8.621 billion at the second-quarter end.

Cumulative net cash provided by operating activities at the end of third-quarter 2023 was $1.56 billion compared with $929.2 million a year ago.

Meanwhile, Ecolab has a consistent dividend-paying history, with a five-year annualized dividend growth of 3.58%.

Guidance

Ecolab has provided its adjusted EPS outlook for the fourth quarter of 2023.

The company expects its adjusted EPS to be in the range of $1.48-$1.58, up 17-24% from the year-ago period. The Zacks Consensus Estimate for the quarter is currently pegged at $1.52 per share.

For 2024, Ecolab continues to expect mid-teens or better growth in adjusted EPS.

Our Take

Ecolab exited the third quarter of 2023 with better-than-expected earnings. The company registered a robust year-over-year uptick in its top and bottom lines, along with solid performances across all segments. Strong pricing momentum and accelerating volume trends were also encouraging. Ecolab’s new business wins and productivity initiatives are well-positioned to drive growth and global leadership. The company’s innovation, digital offerings and service capabilities are expected to lead to robust new business wins, which are encouraging. The expansion of both margins bodes well for the stock.

However, Ecolab’s lower-than-expected revenues and soft Paper sales were disappointing. The company continued to face challenging macroeconomic conditions, raising our apprehension.

Zacks Rank and Key Picks

Ecolab currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories ABT, Boston Scientific Corporation BSX and Integer Holdings Corporation ITGR.

Abbott, carrying a Zacks Rank of 2 (Buy), reported third-quarter 2023 adjusted EPS of $1.14, beating the Zacks Consensus Estimate by 3.6%. Revenues of $10.14 billion outpaced the consensus mark by 3.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 6.8%.

Boston Scientific reported third-quarter 2023 adjusted EPS of 50 cents, beating the Zacks Consensus Estimate by 4.2%. Revenues of $3.53 billion surpassed the Zacks Consensus Estimate by 1.8%. It currently carries a Zacks Rank #2.

Boston Scientific has a long-term estimated growth rate of 12.5%. BSX’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 4.3%.

Integer Holdings reported third-quarter 2023 adjusted EPS of $1.27, beating the Zacks Consensus Estimate by 20.9%. Revenues of $404.7 million surpassed the Zacks Consensus Estimate by 8.7%. It currently carries a Zacks Rank #2.

Integer Holdings has a long-term estimated growth rate of 15.8%. ITGR’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 11.9%.

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Abbott Laboratories (ABT) : Free Stock Analysis Report

Boston Scientific Corporation (BSX) : Free Stock Analysis Report

Ecolab Inc. (ECL) : Free Stock Analysis Report

Integer Holdings Corporation (ITGR) : Free Stock Analysis Report

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