Tuesday, October 27, 2009

Ecolab's Q3 profit boosted by cost cuts and H1N1 scare

Ecolab (ECL) reported 3rd quarter earnings this morning (10/27).

Ecolab's Net Income rose 15% to $145 million in the 3rd quarter ended 9/30/09 as compared to the 2nd quarter of $126 million. This raise in profit was mainly due to the demand of hand sanitizer spurred by the H1N1 flu outbreak and cost-cutting. Their EPS rose to $0.60 from last quarters EPS of $0.50 and were in line with analysts expectations and on the top end of management's guidance. Although profit increased, revenue fell 5% to $1.54 billion, which was also in line with analyst expectations.

Despite the decline in revenue for the quarter, Ecolab CEO, chairman and president Douglas Baker Jr. said in a press statement that the company saw “steady demand” in its food, beverage and health care markets. It’s also seen demand for its hand sanitizer products grow, due to the H1N1 virus.

Commenting on the quarter, Douglas M. Baker said, “We continue to make solid progress. The quarter was on track, reflecting our focus on new business growth, appropriate pricing and structural cost improvement to offset soft market conditions and yield the strong earnings gain. We’re very pleased with the work our team has done to deliver these strong results across all geographies in a difficult economy. We continue to build our business, invest in our future and deliver.

Ecolab has narrowed the range for its pro forma earnings per share forecast, which excludes special gains and charges and discrete tax items, for the full year ending December 31, 2009 to $1.98 to $2.01 from the previous forecast of $1.96 to $2.02.

ECL shares were trading down to $45.10 (-1.81%) as of 2 pm Tuesday.

I have updated the ECL model and increased the price target to $50.32, which represents 10% upside from the current price.

UASBIG feels very comfortable in continuing to hold Ecolab. With high demand for their diverse product lines, consistent buybacking of shares, and the H1N1 scare, we believe Ecolab shareholders will benefit.

~Nick Iuliucci

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