Douglas Baker, CEO of Ecolab, said to give the St. Paul-based cleaning chemicals giant some time to overcome the unexpected spike in raw-materials costs and unfavorable foreign currency translations.
The company reported third-quarter sales that met analysts' expectations, jumping 5 percent to $3.75 billion. Three of its four business units showed gains.
Profits grew 11 percent to $435 million, or $1.48 a share, for the quarter ended Sept. 30.
Excluding one-time gains, special charges and discrete tax items, adjusted earnings were $1.53 a share, a penny shy of analysts' average expectations.
"In short, I'm happy with our business performance and I'm not happy at all that we had to lower our guidance, but the story isn't very complicated," Baker said during a conference call Tuesday with analysts. "The business results are strong. Volume growth, pricing, innovation, new business cost savings were all meeting our ambitious targets. … The unexpected was principally raw material costs, which continue to defy gravity, indices and certainly our projections."
He said short-term reactions such as slashing investments would be "foolish." Ecolab continues to look at pricing, long-term cost savings and volume growth.
"But these don't spike to match raws, so it takes more than a quarter, which brings me to my next point: We're winning. We're winning in the marketplace, we are winning against inflation," he said.
Improvement in margins, he said, will show in results during 2019 should the cost factors stay the same.
The company that provides cleaning and other chemicals to hotels, restaurants, schools, plants and oil companies, lowered its full-year guidance for 2018, saying unfavorable foreign currency translations and rising raw materials costs will impact results.
Full-year earnings are now expected to be $5.20 to $5.30 a share. That's down from the prior forecast of $5.30 to $5.50 a share. Ecolab expects fourth-quarter 2018 adjusted earnings to rise 8 to 15 percent to reach $1.49 to $1.59 per share.
Ecolab's stock rose $2.44 to close at $149 a share Tuesday.
CFRA Research analyst Christopher Muir maintained his "hold" recommendation of Ecolab's stock Tuesday.
"Higher prices and volumes, as well as cost savings, were offset by higher product costs and investments in the business at all segments," he wrote in a research note.
During the quarter, sales grew strongest in Ecolab's Paper and Life Sciences unit in the Industrial business; the Specialty unit within the Global institutional business; and in the Global Energy business, he said.
The growth of Ecolab's Energy business during the quarter signaled to several analysts that the volatile days of the energy sector are easing and impacting large industrial firms much less than during the last few years.