Ecolab (ECL) Q2 Earnings & Revenues Beat Mark, Margins Rise

Ecolab Inc. ECL reported second-quarter 2021 adjusted earnings per share (EPS) of $1.22, up 87.7% year over year. Moreover, the bottom line exceeded the Zacks Consensus Estimate by 3.4%.

The year-over-year improvement in the bottom line reflects volume growth, accelerating pricing in excess of higher delivered product costs and lower bad debt expense. This more than offset the adverse impacts of increased variable compensation and Texas freeze. The Texas freeze was estimated to have an unfavorable impact of 5 cents per share.

GAAP EPS for the quarter was $1.08 a share, reflecting a huge 145.5% surge from the year-earlier figure.

Revenue Details

Revenues grossed $3.16 billion in the reported quarter, up 17.8% year over year. The metric again surpassed the Zacks Consensus Estimate by 2.3%.

Ecolab’s fixed currency sales improved 13% whereas acquisition adjusted fixed currency sales climbed 12% from the prior-year period’s level.

The year-over-year uptick in the second quarter top line was driven by strength in Institutional & Specialty, and Other segments along with robust growth in Industrial segment. However, this was offset by the Healthcare & Life Sciences segment’s modest decline.

Segmental Analysis

The Global Industrial segment’s fixed currency sales of $1.56 billion reflect 3.8% growth whereas acquisition adjusted fixed currency sales inched up 3% year over year. The improvement in the acquisition adjusted fixed currency sales was driven by strong growth in Water and Paper (led by recovering market conditions and new business wins) as well as improving trends in Food & Beverage. This revenue growth more than offset lower Downstream sales which reflected low-margin refinery business exits.

The Global Institutional & Specialty arm’s fixed currency sales of $978.9 million reflect growth of 33.5% whereas acquisition adjusted fixed currency sales surged 33% year over year. The improvement in the Institutional division reflected recovering markets in the United States, driven by new business wins including gains from Ecolab Science Certified programs, innovation and pricing.

Ecolab Inc. Price, Consensus and EPS Surprise

Ecolab Inc. Price, Consensus and EPS Surprise

Ecolab Inc. price-consensus-eps-surprise-chart | Ecolab Inc. Quote

The Global Healthcare and Life Sciences’ fixed currency sales of $303.5 million declined 5.6% while acquisition adjusted fixed currency sales fell 8% year over year. Despite the fall in segmental revenues in the second quarter, underlying growth remained strong and consistent with the last few quarters’ trends, driven by new business wins and increased hygiene awareness.

The Other segment’s fixed currency sales of $306.6million improved 23.1% while acquisition adjusted fixed currency sales jumped 23% year over year. The uptick in acquisition adjusted fixed currency sales was led by strong growth in Pest Elimination, driven by recovering markets and new business wins.

Margin Analysis

In the quarter under review, Ecolab’s gross profit improved 25.6% to $1.32 billion. Gross margin expanded 260 basis points (bps) to 41.7%.

Selling, general and administrative expenses rose 8.2% to $853.3 million year over year.

Adjusted operating profit totaled $465.4 million, rising 78% from the prior-year quarter’s level. Adjusted operating margin in the quarter also expanded 498 bps to 14.7%.

Financial Position

Ecolab exited the second quarter of 2021 with cash and cash equivalents of $1.40 billion compared with $1.19 billion at the end of the first quarter. Total debt at the end of the second quarter of 2021 was $6.73 billion compared with $6.71 billion at the end of the first quarter.

Cumulative net cash flow from operating activities at the end of the second quarter was $798.3 million compared with $640.2 million a year ago.

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.

However, the company expects continued recovery in the United States and Europe to reopen as anticipated, soon followed by the rest of the world. Further, Ecolab expects continued strong year-over-year performance in the second half of 2021, with robust sequential earnings improvement in the third quarter of 2021.

The company continues to expect full year 2021 EPS to surpass 2019 EPS from continuing operations, excluding the impact of 15 cents per share from the Texas freeze.

Our Take

Ecolab exited the second quarter with better-than-expected results. However, the company witnessed weak performance in the Global Healthcare and Life Sciences business segment in the quarter under review. The fact that it is yet to provide any financial outlook raises our apprehension.

Nonetheless, the company registered a robust year-over-year uptick in both the bottom and the top line along with solid performances across the majority of its segments. Ecolab’s strength in new business and innovation pipelines and the new focus areas (including 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. Expansion of both margins augurs well for the stock too.

Stocks to Consider

Ecolab currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks, which are expected to report earnings soon, are AMN Healthcare Services Inc AMN, Catalent, Inc. CTLT and Encompass Health Corporation EHC.

The Zacks Consensus Estimate for AMN Healthcare’s second-quarter 2021 adjusted EPS is currently pegged at $1.47. The consensus mark for second-quarter revenues stands at $829.4 million. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Catalent currently sports a Zacks Rank #1. The Zacks Consensus Estimate for Catalent’s fourth-quarter fiscal 2021 adjusted EPS is currently pegged at $1.04. The consensus mark for fiscal fourth-quarter revenues stands at $1.13 billion.

The Zacks Consensus Estimate for Encompass Health’s second-quarter 2021 adjusted EPS is currently pegged at $1.01. The consensus mark for its revenues stands at $937.5 million. The company carries a Zacks Rank #2.

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