Why Is Ecolab (ECL) Down 25.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Ecolab (ECL). Shares have lost about 25.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ecolab due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Ecolab Earnings Miss Estimates in Q4, Margins Expand

Ecolab reported fourth-quarter 2019 adjusted EPS of $1.66, missing the Zacks Consensus Estimate of $1.68. Nonetheless, adjusted EPS rose 7.8% on a year-over-year basis.

The company’s quarterly net sales amounted to $3.82 billion, up 1.7% from the year-ago figure. However, net sales lagged the Zacks Consensus Estimate of $3.87 billion.

Segmental Analysis

Global Industrial

Sales at the segment grew 5.5% year over year to $1.47 billion, driven by solid growth in Water, Food & Beverage, and Life Sciences units. Geographically, all regions recorded impressive sales growth in the quarter.

Global Institutional

Sales improved 3.3% year over year to $1.34 billion, led by robust growth in the Specialty business. Sales at the segment significantly grew across all geographies.

Global Energy

Sales at the segment dropped 3% year over year to $845.4 million. Per management, upstream sales dropped slightly owing to a decline in the well-stimulation business.

Other

Sales rose 3.8% year over year to $227.4 million, reflecting strong gains in both Pest Elimination and Colloidal Technologies across all geographies.

Margin Analysis

Ecolab registered adjusted gross profit of $1.62 billion, up 4.6% year over year. As a percentage of revenues, adjusted gross margin in the fourth quarter was 42.4%, up 120 basis points (bps).

Adjusted operating income in the quarter was $645.6 million, up 6.9% year over year. Adjusted operating margin in the quarter was 16.9%, which expanded 80 bps year over year.

Guidance

For 2020, Ecolab expects adjusted EPS within $6.33-$6.53, calling for 9-12% growth from 2019.

Adjusted gross margin is expected to be 42-43% of net sales.

For first-quarter 2020, Ecolab expects adjusted EPS within $1.05-$1.13, mirroring year-over-year growth of 6-13%.

The coronavirus outbreak is expected to have a 5-cent unfavorable impact on adjusted EPS.

Adjusted gross margin is expected to be 41-42% of quarterly sales.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.63% due to these changes.

VGM Scores

Currently, Ecolab has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ecolab has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.