Supply chain disruptions caused by the surge of COVID-19 at the end of the year, plus inflation, will result in Ecolab missing its earnings forecast for the fourth quarter, the company said Friday.
The St. Paul-based cleaning and water purification company said sales would be up about 9% for the quarter and 10% for the year. While less than expected, revenue continued to improve over 2020 when annual sales were $11.8 billion, down 21% from fiscal 2019.
But the supply chain issues and cost inflation will lower quarterly earnings per share about 10 cents and full-year earnings about $1.
With the omicron variant resulting in another increase in COVID-19 cases, "raw material supply challenges got worse," said an Ecolab spokesman via e-mail. The company had to go to second- and third-tier vendors, resulting in "significant near-term cost premiums."
The COVID-19 surge also affected Ecolab's logistics, including when one of Ecolab's long-time delivery companies shut down without warning in December, the spokesman said.
Seth Goldstein, senior analyst with Morningstar, wrote in a research note that Ecolab's sales to hotel and restaurant customers would continue to be depressed into 2022, especially with the rise of the omicron variant of the virus.
But Goldstein, who wrote that he thought Ecolab's shares were undervalued, said he thinks the company will overcome inflation.
"We continue to expect that Ecolab will be able to raise prices to fully offset cost inflation over the next couple of quarters," he wrote.
Fourth quarter earnings per share will be between $1.03 and $1.05, missing the company's guidance. After adjusting for the impact of its acquisition of Purolite, which closed in December, earnings will be $1.26 to $1.28 a share.
For the full year 2021, adjusted diluted EPS is expected to grow between 16% and 17%. Analysts were expecting annual EPS of approximately $4.80 a share, which would have been a 19% increase over 2020's full year earnings.
The company put out a pre-earnings announcement. Full results will be released on Feb. 15.
"We enter 2022 not with the environment we expected, but with the underlying momentum we wanted to have," said Christophe Beck, Ecolab's president and chief executive, in a news release. "With a continued, but uneven, global economic recovery, we expect further strong sales trends, robust new business wins, new innovation and increased pricing to capture the incremental value we create for our customers and to compensate for the much higher supply costs we expect in 2022."
Beck said the company remains confident in its longer-term outlook.
Shares of Ecolab closed down 8.5% at $195.09, a 52-week low.
