Ecolab's (ECL) Q1 Earnings in Line, Revenues Beat Estimates

Ecolab Inc. ECL reported first-quarter 2022 adjusted earnings per share (“EPS”) of 82 cents, up by a penny year over year. The bottom line was in line with the Zacks Consensus Estimate.

GAAP EPS for the quarter was 60 cents, down 10.4% from the year-earlier figure.

Revenue Details

Revenues grossed $3.27 billion in the reported quarter, up 13.2% year over year. The metric surpassed the Zacks Consensus Estimate by 1.8%.

Ecolab’s fixed currency sales increased 16% and acquisition-adjusted fixed currency sales increased 12% from the prior-year period’s level.

The year-over-year uptick in the first-quarter top line was driven by improved volume gains and rapidly increasing pricing. On a sequential basis, sales growth improved on the back of double-digit gains in Ecolab’s Institutional & Specialty, Industrial and Other segments.

Segmental Analysis

The Global Industrial segment’s fixed currency sales of $1.56 billion reflect 12.4% reported growth whereas acquisition-adjusted fixed currency sales inched up 12% year over year. Strong double-digit growth was witnessed across all divisions on the back of accelerating structural pricing and new business wins.

The Global Institutional & Specialty arm’s fixed currency sales of $1.01 billion reflect reported growth of 19.1%, whereas acquisition-adjusted fixed currency sales surged 19% year over year. The improvement in the Institutional division reflected improved volume gains, good new business wins, new innovation and structural pricing despite a stalled recovery in restaurant and lodging activity due to extended pandemic-led impacts, and customer staffing shortages. Specialty sales showed robust growth on strong quickservice sales despite being partially offset by lower food retail sales, partly due to customer staffing shortages impacting cleaning intensity.

The Global Healthcare and Life Sciences arm’s fixed currency sales of $362.6 million improved 28.9% while acquisition-adjusted fixed currency sales fell 7% year over year.

The Other segment’s fixed currency sales of $296 million improved 11.5% on a reported basis while acquisition-adjusted fixed currency sales jumped 12% year over year. The uptick was led by double-digit gains in Pest Elimination and Textile Care businesses.

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 1.7% to $1.19 billion. However, gross margin contracted 413 basis points (bps) to 36.5%.

Selling, general and administrative expenses rose 6% to $914.7 million, year over year.

Adjusted operating profit totaled $278.6 million, declining 10.2% from the prior-year quarter’s level. Adjusted operating margin in the quarter also contracted 222 bps to 8.5%.

Financial Position

Ecolab exited first-quarter 2022 with cash and cash equivalents of $99.4 million compared with $359.9 million at the end of 2021. Total debt at the end of first-quarter 2022 was $8.760 billion compared with $8.758 billion at the end of 2021.

Meanwhile, Ecolab has a consistent dividend-paying history, with five-year annualized dividend growth being 6.03%.

Guidance

Ecolab has not initiated either quarterly or full-year 2022 outlook due to continued uncertainty surrounding the COVID-19 pandemic, and the full scope of its impact on the global economy and the duration of the same.

However, the company expects to be impacted by substantial raw material and cost inflation, which is likely to increase further in the second quarter and remain high for the remainder of the year.

Despite the substantial cost headwinds, Ecolab expects its combined pricing actions (including its ongoing structural pricing and the energy surcharge), along with strong volume growth and long-term productivity improvements, to yield second-quarter adjusted EPS that comes close to last year’s $1.22. The Zacks Consensus Estimate for the metric is currently pegged at $1.25 per share.

Our Take

Ecolab exited the first quarter with better-than-expected revenues and in-line earnings. The company registered robust year-over-year uptick in its top line, along with solid performances across all of its segments. Strong volume and pricing momentum are also encouraging. Ecolab’s new business wins, innovation pipelines and new focus areas (like life sciences, data centers and animal health) are well-positioned to drive growth and its global leadership. The company’s digital capabilities are also continuing to broaden, develop and add competitive advantages, which are encouraging.

However, the company faced significant product cost inflation and unfavorable currency translation, which weighed on its top-line growth. Contraction of both margins also does not bode well. The fact that it is yet to provide any financial outlook raises our apprehensions.

Zacks Rank and Key Picks

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

Here are some medical stocks with the right combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy), or #3, which are expected to post an earnings beat this quarter:

Meridian Bioscience, Inc. VIVO has an Earnings ESP of +26.32% and a Zacks Rank of 2. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Meridian Bioscience has an earnings yield of 5.2% compared with the industry’s 0.9%. Meridian Bioscience’s earnings surpassed estimates in three of the trailing four quarters, with the average surprise being 9.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Qiagen N.V. QGEN has an Earnings ESP of +0.14% and is a Zacks #2 Ranked stock. Qiagen has an estimated long-term growth rate of 11.5%.

Qiagen’s earnings surpassed estimates in the trailing four quarters, the average surprise being 9.8%.

Vertex Pharmaceuticals Incorporated VRTX has an Earnings ESP of +0.87% and is a Zacks #2 Ranked stock. Vertex Pharmaceuticals has an estimated long-term growth rate of 11.5%.

Vertex Pharmaceuticals’ earnings surpassed estimates in the trailing four quarters, the average surprise being 10%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.