Ecolab Inc. Earnings Cheat Sheet: Higher Expenses Shrinks Margins, Profit Declines

S&P 500 (NYSE:SPY) component Ecolab Inc. (NYSE:ECL) reported its results for the third quarter. Ecolab develops and markets cleaning and sanitizing products and programs, pest elimination, maintenance, and repair services for the hospitality, foodservice, healthcare and industrial markets.

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Ecolab Earnings Cheat Sheet for the Third Quarter

Results: Net income for Ecolab Inc. fell to $154.3 million (65 cents per share) vs. $174.2 million (74 cents per share) a year earlier. This is a decline of 11.4% from the year earlier quarter.

Revenue: Rose 11.2% to $1.74 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: ECL reported adjusted net income of 75 cents per share. By that measure, the company fell in line with the mean estimate of 75 cents per share. Analysts were expecting revenue of $1.74 billion.

Quoting Management: Commenting on the quarter, Douglas M. Baker, Jr., Ecolab’s Chairman, President and Chief Executive Officer, said, “We delivered very good results in a challenging environment. Most importantly, we have set ourselves up to deliver a strong 2011 and are continuing to build momentum leading into 2012. “Our sales growth remained on-track and outperformed our markets. We had excellent new business results and our strong portfolio of new products continues to gain traction. Additionally, all of our recent acquisitions continue to outperform our expectations. These results, combined with our success in realizing leverage from our cost efficiency programs and our European restructure program in particular, allowed us to overcome significantly higher than anticipated raw material costs.”

Key Stats:

Gross margin shrank 1.7 percentage points to 49.4%. The contraction appeared to be driven by increased costs, which rose 15% from the year earlier quarter while revenue rose 11.2%.

Revenue has risen the past four quarters. Revenue increased 11.7% to $1.7 billion in the second quarter. The figure rose 6% in the first quarter from the year earlier and climbed 0.7% in the fourth quarter of the last fiscal year from the year-ago quarter.

The company has now seen net income fall in each of the last three quarters. In the second quarter, net income fell 2.6% from the year earlier, while the figure fell 2% in the first quarter.

The company has now fallen in line with estimates for the past two quarters. It reported net income of 64 cents in the second quarter.

Looking Forward: Analysts appear increasingly optimistic about the company’s results for the next quarter. The average estimate for the fourth quarter has moved up from 70 cents a share to 71 cents over the last ninety days. Over the past three months, the average estimate for the fiscal year has climbed from $2.53 per to share to $2.55.

Competitors to Watch: Ocean Bio-Chem, Inc. (NASDAQ:OBCI), Zep, Inc. (NYSE:ZEP), PURE Bioscience (NASDAQ:PURE), Rollins, Inc. (NYSE:ROL), Proctor & Gamble (NYSE:PG), The Clorox Company (NYSE:CLX) and Church & Dwight (NYSE:CHD).

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(Source: Xignite Financials)