Ecolab (ECL) Up 4.3% Since Last Earnings Report: Will It Continue?

It’s been about a month since Ecolab’s (ECL) last reported earnings. Shares are up about 4.3% in that time, outperforming the S&P 500.

Will the recent positive trend continue into its next earnings release, or is Ecolab headed for a pullback? Before we dive into how investors and analysts have reacted recently, let’s take a quick look at the latest earnings report to better understand the important factors.

Latest earnings

Ecolab reported second-quarter 2018 adjusted earnings of $1.27 per share, in line with the Zacks Consensus Estimate. Earnings also rose 13% year over year.

Adjusted quarterly net sales were $3.69 billion, representing an increase of 6.6% from the prior-year quarter. Net sales also exceeded the Zacks Consensus Estimate of $3.70 billion.

Segment analysis

Global industry

Sales in this segment increased 10% year over year to nearly $1.33 billion. Sales in constant currency, adjusted for acquisitions, were $1.35 billion, up 5% year over year.

Growth was driven by strong gains in the Water, Food & Beverage and Life Sciences unit. Europe, North America and Latin America drove regional growth in Global Industrial.

However, acquisition-adjusted operating income in this segment at constant currency was down 2% year-over-year due to higher costs of delivered products and heavy investments in the business.

Global Institutional

Sales increased 6% to $1.3 billion, primarily driven by strong growth in the Specialty segment. Sales at constant currency adjusted for acquisitions were $1.31 billion, up 3% year over year.

The segment saw solid growth in the Specialty unit. North America and Asia Pacific saw strong growth in the quarter.

Acquisition-adjusted operating profit at constant currency decreased by 2% year-over-year due to higher costs of products supplied.

Global energy

Sales in this segment increased 6% to $845.2 million, driven by strong growth in the well stimulation business and modest gains in the downstream business. Sales in constant currency, adjusted for acquisitions, were $854 million, up 6% year over year.

Acquisition-adjusted operating profit at constant currency increased 29%, driven by increased volume, favorable pricing and a solid product offering.

Other

Sales decreased 7% year over year to $220.5 million. Sales in constant currency adjusted for acquisitions were $222.3 million, up 8% year over year. Sales in this segment posted solid growth in North America.

Conductivity

Ecolab reiterates 2018 outlook.

The company expects adjusted earnings in the range of $5.30-$5.50 per share. Interestingly, that implies growth in the range of 13%-18% year over year.

Adjusted gross margin to revenue is expected to be 41%-42% of net revenue.

For the third quarter of 2018, Ecolab expects adjusted earnings in the range of $1.49-$1.57 per share. Current outlook reflects year-over-year growth of 8%-14%.

Adjusted gross margin for the third quarter of 2018 is expected to be 42% of net revenue.

How have estimates changed since then?

Over the past month, investors have witnessed a downward trend in new estimates.

VGM Results

Ecolab currently has a weak Growth Score of D, but its Momentum Score is slightly better at C. Similarly, the stock has a D rating on the Value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has a Composite VGM Score of D. If you’re not focused on a single strategy, this rating should interest you.

The company’s shares are only suitable for momentum investing, based on our style rating results.

Perspectives

The stock’s estimates are trending lower, and the magnitude of these revisions indicates a downward shift. Interestingly, Ecolab has a Zacks Rank #3 (Hold). We expect the stock to deliver consistent returns over the next few months.

Want the latest recommendations from Zacks Investment Research? Today you can download the 7 best stocks for the next 30 days. Click to get this free report

Ecolab Inc. (ECL): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research