Ecolab's third-quarter profit grew 7%, meeting analysts' expectations, but executives lowered their outlook for the rest of the year, citing softer industrial markets, unfavorable foreign exchange rates and a moderate pullback on price hikes.
The cleaning chemical and water filtration company said Tuesday it earned $464 million, or $1.59 a share, in the three months ended Sept. 30. Excluding one-time gains and charges, the profit adjusted to $1.71 a share, in line with analysts' average forecasts.
Revenue rose 2% to $3.82 billion, slightly below expectations.
Ecolab, which generates about $15 billion in annual sales, performed relatively well during the quarter compared to other industrial companies. Revenue growth has widely slowed or fallen for most U.S.-based manufacturers in the auto, electric, paper and aerospace markets and as demand inside China and Europe has slowed.
Ecolab spokesman Michael Monahan said in an interview Tuesday that Ecolab also saw weaker growth in Europe. Sales grew in China but more slowly amid overcapacity problems there surrounding paper and packaging markets and due to U.S. trade tariffs, he said.
Despite those issues, "There's a lot to like in this quarter and there are some areas we are addressing," CEO Douglas Baker told analysts during a conference call Tuesday. "We performed well in the quarter as we overcame softer industrial and energy markets and unfavorable foreign exchange to deliver 12% adjusted earnings per share growth."
Ecolab's largest division, industrial, grew sales 5% to $1.4 billion in the quarter as food, beverage and water filtration orders rose.
Ecolab's institutional sales rose 4% to $1.36 billion during the quarter as cleaning product and service orders increased from hotels and restaurants. Its energy division saw sales fall 3% to $836 million as oil drilling chemical and other "upstream energy" sales fell amid "a significant decline in the well stimulation business," Ecolab said.
Executives trimmed the upper end of their prior earnings guidance for the full year 2019. The company now expects adjusted earnings to be between $5.80 to $5.90 a share. The prior range had been $5.80 to $6 per share.
While the forecast narrowed, executives noted that profits are still growing as it raises prices, adds new business and achieves cost efficiencies. Going forward, Ecolab will place a priority on new business, market share growth, and innovative digital products.
"When coupled with our continued strong pricing and cost efficiency work, we expect to deliver double-digit adjusted earnings per share for the full year 2019 while also setting up a good start to 2020," Baker said. "Certainly some markets are softening but it's not softening across the board in the industrial areas."
Markets not yet affected by an industrial slowdown include food and beverage, chemical plants, commercial buildings, and the life sciences sectors, Baker said.
Ecolab's stock price rose 1.5% to close at $194.52 a share Tuesday.
Ecolab said its plan to spin off its "upstream energy" oil drilling chemicals business into a separate company remains on track for mid-2020. Third-quarter results included $39 million in amortization expenses plus a $72 million charge related to previously disclosed efficiency initiatives and costs tied to the 2020 spinoff of the upstream energy business.
Separately, Baker said Ecolab will legally challenge a decision by a key British regulator that refused to approve Ecolab's December acquisition of Holchem Group cleaning products. The Competition and Markets Authority has ordered Ecolab to divest the $56 million division due to anti-competitive concerns in the region. "We have a disagreement with the antitrust authority, Baker said. "We plan to challenge it."
Dee DePass • 612-673-7725