Why Is Ecolab (ECL) Up 3.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Ecolab (ECL). Shares have added about 3.8% 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 its most recent earnings report in order to get a better handle on the important drivers.
Ecolab Q4 Earnings Surpass Estimates, Margins Rise
Ecolab reported fourth-quarter 2023 adjusted earnings per share of $1.55, up 22% year over year. The bottom line exceeded the Zacks Consensus Estimate by 0.7%.
GAAP earnings per share for the quarter was $1.41, up 51.6% year over year.
Full-year adjusted earnings per share was $5.21, up 16% compared with that at the end of the comparable 2022 period. The figure surpassed the Zacks Consensus Estimate by 0.4%.
Revenue Details
Revenues grossed $3.94 billion in the reported quarter, up 7.3% year over year. The metric missed the Zacks Consensus Estimate by 0.5%.
Ecolab’s organic sales increased 6% from the prior-year period’s level.
The year-over-year uptick in the fourth-quarter organic sales was driven by double-digit growth in the Institutional & Specialty segment, Pest Elimination business and solid growth in the Industrial segment.
Full-year revenues were $15.32 billion, reflecting a 7.9% improvement from the comparable 2022 period. The figure lagged the Zacks Consensus Estimate by 0.2%.
Segmental Analysis
The Global Industrial segment’s fixed currency sales of $1.87 billion reflect 3.5% reported growth year over year. Organic sales increased 3% year over year, driven by robust growth in Water and Food & Beverage. 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 $1.29 billion reflect reported growth of 13.3%. Organic sales increased 12% year over year, with both the Institutional and Specialty divisions growing double digits, driven by robust pricing and new business gains.
The Global Healthcare and Life Sciences arm’s fixed currency sales of $410.1 million declined 0.7%, while organic sales were down 1%. Per management, year-over-year organic sales were stable as continued solid growth in Healthcare largely offset the expected decline in Life Sciences. Life Sciences’ underlying performance remained stable as new business wins and pricing were more than offset by comparisons to 2022’s strong growth.
The Other segment’s fixed currency sales of $370.1 million improved 7.8% on a reported basis. Organic sales growth was 8%, driven by double-digit growth in Pest Elimination.
Margin Analysis
In the quarter under review, Ecolab’s gross profit improved 16.8% to $1.65 billion. The gross margin expanded 342 basis points (bps) to 41.9%.
Selling, general and administrative expenses rose 12.2% to $1.03 billion year over year.
Adjusted operating profit totaled $619.2 million, increasing 25.3% from the prior-year quarter’s level. Adjusted operating margin in the quarter also expanded 226 bps to 15.7%.
Financial Position
Ecolab exited 2023 with cash and cash equivalents of $919.5 million compared with $598.6 million at the end of 2022. Total debt at the end of 2023 was $8.18 billion compared with $8.58 billion at 2022-end.
Cumulative net cash provided by operating activities at the end of 2023 was $2.41 billion compared with $1.79 billion a year ago.
Meanwhile, Ecolab has a consistent dividend-paying history, with a five-year annualized dividend growth of 4.08%.
Guidance
Ecolab has provided its adjusted earnings per share outlook for the first quarter of 2024.
The company expects its adjusted earnings per share in the range of $1.27-$1.37, up 44-56% from the year-ago period. The Zacks Consensus Estimate for the quarter is currently pegged at $1.13 per share.
For 2024, Ecolab expects its adjusted earnings per share in the range of $6.10-$6.50, up 17-25% from the comparable 2023 period. The Zacks Consensus Estimate is currently pegged at $6.08 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 17.53% due to these changes.
VGM Scores
At this time, Ecolab has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Ecolab has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Ecolab belongs to the Zacks Chemical - Specialty industry. Another stock from the same industry, Linde (LIN), has gained 13.5% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
Linde reported revenues of $8.3 billion in the last reported quarter, representing a year-over-year change of +5.1%. EPS of $3.59 for the same period compares with $3.16 a year ago.
For the current quarter, Linde is expected to post earnings of $3.68 per share, indicating a change of +7.6% from the year-ago quarter. The Zacks Consensus Estimate has changed +0% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Linde. Also, the stock has a VGM Score of D.
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