Ecolab posts solid quarter, meets Wall Street estimates

Despite the effects of rising fuel costs, Ecolab reiterated its full-year 2018 expectations after second-quarter sales and profits spiked amid growth gains from all divisions, company officials announced Tuesday.

Officials at the St. Paul-based maker of sanitizing and filtration chemicals also revealed plans to cut $200 million in selling and administrative expenses by 2021, resulting in unnamed plant closures and staffing reductions.

For the quarter ended June 30, sales rose 7 percent to $3.7 billion. Profits rose 19 percent to $351 million or $1.20 a share. Excluding one-time items and a lower tax rate, adjusted income rose 13 percent to $1.27 a share. Results met analysts' average expectations.

On average, Wall Street analysts expected profits of $1.27 a share and revenue of $3.7 billion for the quarter.

The company saw pricing and volume improvements during the quarter. In speaking to analysts during a conference call Tuesday, CEO Doug Baker said that new business wins, new products and enhanced pricing and cost efficiencies helped the quarter.

Baker said he expected these "strong trends to continue." Improvements were across all divisions and should be enough to offset rising transportation and raw-material costs during the rest of the year.

Like many companies, Ecolab has not been immune to rising fuel prices needed to bring goods to market. Many of Ecolab's products depend on oil-based chemicals, said Ecolab spokesman Mike Monahan.

Companies that have any exposure to oil-based materials are seeing costs "rise dramatically. They are up 30 percent year over year," Monahan told the Star Tribune. "Most of our own raws are oil based and are up 15 to 20 percent this year alone."

In addition, transportation costs are rising amid a nationwide driver shortage that has hit the trucking and freight industry hard.

Even so, full-year earnings are still expected to rise 13 to 18 percent to reach $5.30 to $5.50 a share in 2018.

Officials also said that Ecolab will build upon recent investments in computer enterprise systems and other technology platforms. It is implementing a new efficiency program to cut $200 million in selling, general and administrative expenses (SG&A) by 2021. The program will result in $170 million in pretax charges over three years, including $10 million taken during the second quarter 2018. Officials said the charges will be tied to "team reorganizations and some facility closures."

Baker told analysts that the efficiency move is warranted and is expected to work in conjunction with the company's plan to increase prices to offset rising costs.

"This [SG&A efficiency] program leverages our more than $600 million investment in technology, and will streamline our organization, reduce complexity and improve our business processes to help drive our future growth and margin expansion," Baker said. "Internal teams will work through the balance of this year to develop final plans for our global business structure and resource improvement."

CFRA Research Analyst Christopher Muir said in a note that the $200 million cost-reduction plan "will help to offset rising raw material costs." The plan also comes at a time when "the strength of [Ecolab's] global energy segment" continues to improve along with industry conditions.

Ecolab's energy division has been vulnerable to the industry's volatile cycles. Muir noted that the division's risk could return, should oil and gas prices plummet again as they have during the last three years.

Ecolab's stock closed Tuesday at $140.70, down 4 cents. The stock has traded between $125 and $150 during the last 12 months.

Dee DePass • 612-673-7725