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Why Is Ecolab (ECL) Down 3.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Ecolab (ECL). Shares have lost about 3.2% 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 Q1 Earnings Miss, Revenues Surpass Estimates

Ecolab Inc. reported first-quarter 2021 adjusted earnings per share of 81 cents, which missed the Zacks Consensus Estimate of 82 cents by 1.2%. Also, the bottom line fell 18.2% on a year-over-year basis.

The year-over-year decline in the bottom line was due to COVID-associated volume declines, unfavorable business mix and Texas freeze impacts, which more than offset favorable pricing and cost-saving initiatives.

Revenue Details

This company’s quarterly net sales were $2.89 billion, down 4.5% from the year-ago figure. Nonetheless, the top line beat the Zacks Consensus Estimate by 0.9%.

Segmental Analysis

Global Industrial

Sales at the segment fell 2.1% year over year to $1.43 billion. Substantial decrease in Downstream sales and a decline in Food & Beverage more than offset modest sales growth in Paper and sustained Water sales.

Global Institutional & Specialty

Sales declined 21% year over year to $858.5 million owing to a slight decline in the Institutional business as well as in Specialty sales resulting from the adverse impact of the continued COVID-19 second wave.

Global Healthcare and Life Sciences

Sales at the segment improved 14.4% year over year to $293.7 million, driven by new business and higher sales on account of the coronavirus-related demand in both the Healthcare and Life Sciences business lines.

Other

Sales declined 2.9% year over year to $271.3 million.

Margin Analysis

Ecolab reported adjusted gross profit of $1.19 billion, down 13% year over year. As a percentage of revenues, adjusted gross margin in the first quarter was 41.3%, down 210 basis points (bps).

Adjusted operating income in the quarter was $330.2 million, down 19.3% year over year. Adjusted operating margin in the quarter was 11.4%, which contracted 180 bps year over year.

Guidance

The company has not issued either quarterly or 2021 outlook due to the continued uncertainty surrounding the COVID-19 pandemic and the full scope of its impact on the global economy and duration of the same.

The company estimates continued recovery in 2021. Full-year 2021 sales at the Healthcare & Life Sciences segment are anticipated to exhibit moderate improvement compared with the previous year’s solid growth. Both Industrial and Other segment business are expected to deliver sales growth on a year-over-year basis. Institutional & Specialty segment sales are projected to show substantial growth on a year-over-year basis in 2021 as it progresses toward its pre-COVID peak 2019 levels.

For the second quarter, the company expects to witness growth, primarily driven by robust year-over-year growth in its Institutional division. New business along with improving trends in early-reopening U.S. states and sustained U.S. vaccination progress are likely to contribute to the anticipated growth. However, a softer Europe and emerging market recovery can partially offset the improvement.

The company estimates strong consolidated gains in the second half of 2021, with substantial growth for the full year 2021 on a year-over-year basis.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Ecolab has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, 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 D. 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. Notably, Ecolab has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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