Ecolab Inc. Earnings Cheat Sheet: Increasing Costs Tighten Margins as Net Income Falls

S&P 500 (NYSE:SPY) component Ecolab Inc. (NYSE:ECL) reported its results for the second quarter. Ecolab Inc. 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 Second Quarter

Results: Net income for the cleaning products company fell to $125.9 million (53 cents per share) vs. $129.3 million (54 cents per share) a year earlier. This is a decline of 2.6% from the year earlier quarter.

Revenue: Rose 11.7% to $1.7 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: ECL reported adjusted net income of 64 cents per share. By that measure, the company beat the mean estimate of 63 cents per share. It beat the average revenue estimate of $1.65 billion.

Quoting Management: Commenting on the quarter, Douglas M. Baker, Jr., Ecolab’s Chairman, President and Chief Executive Officer said, “We had a very good second quarter. Our organic sales continued to accelerate, our recent acquisitions are all ahead of their plans, and our innovation and pricing plans also continued to gain traction. This enabled us to offset significant raw material inflation, which peaked for us during this quarter in North America and in total, while Europe will see raw material costs peak in the third quarter before abating on a year-on-year basis. Our work to transform Europe into a higher growth, more efficient and more profitable region is also going well. In spite of much higher than anticipated raw material costs, we remain on target to deliver significant improvement in our operating margin this year as our program to transform Europe operations is delivering ahead of schedule. “As a result of our strengthening sales and improving margins, we raised our forecast for the year. Our longer term expectations remain bright, and are strengthened as a result of our announced plan to merge with Nalco. This merger will increase our ability to meet our current customer needs, broaden our technology portfolio, and nearly double the market opportunity in front of us. This will increase our growth capabilities on both a top line and bottom line basis. Our strong position has been further improved, and we are in great shape to deliver out-sized results for our shareholders.”

Key Stats:

Gross margin shrank 1.3 percentage points to 49.3%. The contraction appeared to be driven by increased costs, which rose 14.8% from the year earlier quarter while revenue rose 11.7%.

Revenue has risen the past four quarters. Revenue increased 6% to $1.52 billion in the first quarter. The figure rose 0.7% in the fourth quarter of the last fiscal year from the year earlier and climbed 1% in the third quarter of the last fiscal year from the year-ago quarter.

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

The company has now beaten estimates the last two quarters. In the first quarter, it topped expectations with net income of 45 cents versus a mean estimate of net income of 44 cents per share.

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)