Ecolab (NYSE: ECL) reported Q2 EPS of $1.27, in-line with the analyst estimate of $1.27. Revenue for the quarter came in at $3.69 billion versus the consensus estimate of $3.7 billion.

CEO comment

Commenting on the quarter, Douglas M. Baker, Jr., Ecolab’s chairman and chief executive officer said, "Our business continues to improve. We achieved another solid quarter, as strong sales actions and accelerated pricing drove top line growth, delivering 5% acquisition adjusted fixed currency growth. These attractive gains, along with cost efficiencies and a reduced tax rate, more than offset continued rising delivered product costs and yielded the 13% adjusted earnings per share growth.

"We expect these strong trends to continue in the second half, where we anticipate fixed currency sales and margins to continue to strengthen and deliver strong earnings per share growth. As our pricing and volumes continue to accelerate, we expect to fully offset the higher delivered product costs and unfavorable currency exchange that have developed since our first quarter earnings report. This should drive margin leverage versus last year, demonstrating the strength of our innovation and the value our products and services create for our customers.

“In addition, following the last several years’ investments in enterprise systems and technology platforms, we are undertaking a program to deliver $200 million of SG&A savings by 2021. This 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. Internal teams will work through the balance of this year to develop final plans for our global business structure and resource improvement. This program will give us another important set of tools in addition to pricing to protect and expand margins in an environment where we expect cost inflation to remain a headwind for the foreseeable future. These efforts will be the primary focus of and source for our cost savings activities over the next several years as we reallocate our resources to pursuing them.

"We continue to expect strong results for the full year 2018 as we work to deliver attractive sales and earnings per share growth across all segments while also investing for better growth in our future. We have enhanced our industry leadership positions, building on our product and service strengths, to improve customer results. We are also rapidly developing our digital platforms that will bring our customers new insights and predictivity to their operations, as well as improve our service levels for them. We are excited about our opportunities, both over the near and long term, and are determined to continue delivering superior shareholder value.”

Business Outlook

2018

Ecolab continues to expect full year 2018 adjusted diluted earnings per share in the $5.30 to $5.50 range, representing a 13% to 18% increase over 2017.

When compared with our 2017 performance, we expect improved acquisition adjusted fixed currency sales growth in all of our segments. Versus the comparable measures last year, we anticipate slightly lower adjusted gross margin as volume gains, pricing and cost efficiency actions nearly offset higher delivered product costs (which are expected to show somewhat moderating increases in the fourth quarter), with a lower SG&A ratio to sales, higher other income, and lower interest expense and a lower adjusted tax rate versus 2017 reflecting the impact of the recently enacted U.S. Tax Cuts and Jobs Act and tax planning.

We expect special charges in 2018 to be $0.30 to $0.40 per share principally related to the charges for the efficiency initiative, a previously announced $25 million funding commitment to the Ecolab Foundation, as well as integration of previously announced acquisitions. In addition, the discrete tax item related to excess tax benefits on share-based compensation is expected to be favorable. Other than this discrete tax item and special gains and charges noted above, other such amounts are not currently quantifiable.

At current rates of exchange, we expect foreign currency translation to have an approximate $0.02 benefit to diluted earnings per share versus the previously expected $0.10 benefit.

GUIDANCE:

Ecolab sees FY2018 EPS of $5.30-$5.50, versus the consensus of $5.38.

For earnings history and earnings-related data on Ecolab (ECL) click here.