Ecolab (ECL) Meets Estimates, Reaffirms

Ecolab Inc (ECL), a leading provider of cleaning and sanitation products, reported second-quarter fiscal 2010 adjusted (excluding special gains and charges) earnings of 56 cents, matching the Zacks Consensus Estimate while topping the year-ago earnings of 50 cents.

Net income surged 30% year-over-year to $129 million (or 54 cents a share). Net sales climbed 5% year-over-year to $1.52 billion, also in line with the Zacks Consensus Estimate. The results were driven by strong performances across Asia-Pacific and Latin America, favorable foreign exchange translation, as well as lower delivered product costs and cost-cutting initiatives.

Segment Results

Sales at Ecolab’s US Cleaning & Sanitizing operations inched up 3% year-over-year to $689 million. Revenues from US Other Services segment were stable year-over-year at $115 million. Sales (at constant currency rates) from the company’s International operations rose 5% year-over-year to $750 million. International sales climbed 9% when measured at public currency rates. The results were supported by slowly recovering end-markets.

Margins

Operating margin improved to 13.4% from 11.4% a year-ago, helped by effective cost-management and operational efficiency. Gross margin increased to 50.7% from 49.7% a year-ago, favored by lower raw material input costs.

Financial Position

Ecolab exited the first-half 2010 with cash and cash equivalents of $121.3 million, up 47% year-over-year. Long-term debt of $637 million represents a 24% annualized decline. During the quarter, the company bought back 1.2 million shares under its existing share repurchase program.

Outlook

Ecolab has reiterated its earnings forecast for fiscal 2010 with projected adjusted earnings per share in the range of $2.21 to $2.26 per share. The company expects special gains and charges for the year to be significantly lower than the year-ago level.

For the third quarter, Ecolab expects adjusted earnings per share in the range of 64 cents to 66 cents. The current Zacks Consensus Estimate for the third quarter and fiscal 2010 are 66 cents and $2.24, respectively. The company expects sustained revenue growth at constant currency rates. However, currency exchange translation is forecasted to unfavorably impact the top and bottom line for the third quarter.

Although we are impressed by Ecolab’s strong international presence, we remain cautious about intense competition and impact of foreign exchange headwinds on overseas sales. We currently have a Neutral recommendation for Ecolab.

ECOLAB INC (ECL): Free Stock Analysis Report

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