As part of its strategy to offset higher raw material costs, Nalco, a subsidiary of Ecolab Inc. ( ECL), has raised prices for all its Water and Process Services industry segments. Management has decided to increase pricing for most of Nalco Water and Process Services programs by 5% to 15%, depending on the product as well as the region, with immediate effect.
In addition to rising raw material costs, management noted that energy as well as transportation costs were increasing, owing to global inflationary trends. Thus, it became imperative for them to raise prices to nulify these challenges. They expect appropriate pricing coupled with sustained product innovation to offset commodity inflation. Nalco sales personnel are getting in touch with their clients, personally informing them regarding the price hike.
The price hike should help improve Ecolab’s margins. Although there is a considerable risk associated with increasing product prices, we derive comfort from Ecolab’s loyal customer base and high-quality offerings that should prevent loss of clients to other low-price competitive players in the market. ECL is conceded to be one of the best performing companies among its large-cap chemical peers.
In its last reported quarter, Ecolab asserted that the Nalco integration is progressing smoothly. Moreover, the newly acquired Champion business should further boost the company’s Energy business going forward.
With a background of robust growth, Ecolab is poised to gain momentum via its aggressive strategy of rolling out new products, synergies from acquisitions, ongoing restructuring activities in Europe and growth in emerging markets. However, we are cognizant regarding significant end market pressure and the persisting challenges in the global economy. ECL currently has a Zacks Rank #3 (Hold).
A better-placed company from the chemical-specialty industry, Ferro Corp ( FOE) is worth a look. Stocks from the broader basic material sector, like Limoneira Company ( LMNR) and China Bluechem ( CBLUY), are also worth considering. All these stocks carry a Zacks Rank #1 (Strong Buy).