Tags: Ecolab | M&A | growth | ECL

Ecolab Looks to M&A for Growth

By    |   Tuesday, 13 Dec 2011 12:50 PM

Industrial services company Ecolab (ECL) has a history of relatively steady revenue and earnings growth, which stalled with the 2008-2009 recession. To reaccelerate growth, the company has embarked on an M&A strategy, including a regional restructuring project and a merger.

Ecolab provides cleaning, sanitizing, food safety and disinfectant products and services primarily to the food, healthcare and hospitality industries. The company divides its business into the divisions of U.S. Cleaning & Sanitizing, U.S. Other Services, and International.

Cleaning & Sanitizing generates about 60 percent of operating income, International services about 33 percent and U.S. Other the balance.

For the 2011 third quarter, Ecolab reported revenue of $1.74 billion, up 11 percent from a year earlier and a record level of sales. Adjusted net income — excluding special items — was 75 cents per share, up 14 percent from the 2010 third quarter.

For the full year, the company is forecast to earn $2.54 per share on revenue of $6.7 billion, up from $2.23 per share and $6.1 billion.

Restructuring Europe

In early 2011 Ecolab announced a restructuring of its European operations, combining individual country operation into a single, more automated, continent-wide business. The consolidation is expected to cost $150 million over three years and result in ongoing savings. For comparison, Ecolab had $154 million in net income in 2010.

In July 2011, Ecolab announced an $8 billion merger with Nalco, a services company primarily focused on water treatment. The merger was finalized on Dec. 1. In 2010 Nalco reported revenues of $4.2 billion and net profit of almost $200 million.

The merger is expected to produce $150 million in annual cost synergies. It also increases the number of outstanding Ecolab shares by 30 percent.

As a result of the merger, the consensus earnings estimate for 2012 is $3.03 per share on 78 percent higher revenues of $11.9 billion.

At the close of the merger, Goldman Sachs analysts resumed coverage on Ecolab with a neutral rating on the stock. Recently the analysts at Deutsche Bank upgraded ECL to buy from hold.

The company reports next on Feb. 16.

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Industrial services company Ecolab (ECL) has a history of relatively steady revenue and earnings growth, which stalled with the 2008-2009 recession. To reaccelerate growth, the company has embarked on an M A strategy, including a regional restructuring project and a...
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2011-50-13
Tuesday, 13 Dec 2011 12:50 PM
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