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Several large restaurant chains are upgrading their menus and food quality to attract customers who have been eating out less often. This push for higher standards and more diners is a good sign for Ecolab, which sells the cleaning and sanitizing systems these kitchens rely on.
While Ecolab is growing fast in high-tech areas like data center cooling, its traditional business still depends on the health of the restaurant industry. If these turnarounds succeed in bringing people back to dining rooms, it would help solve the low volume growth that has been a recent drag on Ecolab's legacy division.
Source: CNBC
Ecolab reported a strong third quarter with organic sales, which excludes the impact of currency swings and deals, growing 7 percent. The company is successfully raising prices to offset its own costs while still increasing the total amount of product it sells, a combination that shows its water and hygiene services remain essential to customers like hotels and factories.
Management raised its profit forecast for the full year to about $8.15 per share. While much of the recent excitement has focused on its high-tech data center cooling business, this result shows that its larger, traditional segments like food and beverage are also finding their footing again.
Source: Business Wire
Following Ecolab’s October results, we updated our profit and revenue projections for the next three years. We moved our rating from Buy to Watch as the stock price now reflects the rapid growth in the water cooling business. We have added the cost of integrating recent acquisitions to what we track, which is currently a 10% headwind to earnings growth. We also added a new metric to monitor how much a decline in restaurant visits across North America limits sales growth in the cleaning segment.
Ecolab reported adjusted earnings of $2.18 per share, matching what analysts expected. While total revenue of $4.69 billion was slightly lower than the $4.70 billion target, the underlying business showed strength in its newest divisions. The company raised its prices by 5 percent and saw its organic sales, which strip out the effects of currency swings and acquisitions, grow by 7 percent.
The standout result came from the high-tech division, which provides cooling solutions for data centers and microelectronics. This segment grew its organic sales by 63 percent, proving that Ecolab is successfully pivoting from traditional cleaning services to the infrastructure needed for AI and cloud computing. Management expects full-year earnings to grow about 9 percent, supported by this shift toward higher-margin technology and life sciences work.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Ecolab is scheduled to report its third-quarter results on Tuesday, October 27. Analysts are looking for earnings of about $2.17 per share on revenue of roughly $4.70 billion. For a long-term owner, the focus will be on whether the company can keep growing its volume of sales while maintaining its pricing power. It is also worth watching for updates on its high-tech cooling business, which serves data centers and has become a key driver for the stock's valuation.
Management has a perfect record of meeting or slightly edging past their own targets for two years straight. This suggests they have a firm grip on their costs and set bars they know they can clear.
| Expectation | |
|---|---|
| EPS | $2.19 |
| Revenue | $4.75B |