Ecolab's largest-ever price increases earlier this year fueled an 8% increase in third-quarter profits, but company leaders said Tuesday they expect inflation to remain elevated.
Price increases of about 12% offset most of the cost inflation the company itself has experienced. Even so, Ecolab's profit margins remain below the levels it experienced before the pandemic's shock on the global economy.
Now, Ecolab's European business is under immense pressure amid the war in Ukraine and the looming energy crisis there. As a result, Ecolab CEO Christophe Beck said earnings growth would come "at a more moderate pace than previously anticipated."
Shares in the St. Paul-based provider of water, hygiene and infection prevention products and services fell 9% in Tuesday trading.
In a call with investors, Beck said Ecolab was retaining customers even as it raised prices — and that more price hikes were ahead as it sought to maintain its profit margin.
"As you know, at Ecolab, when we go up, we don't go down," Beck told analysts and investors. A surcharge in the company's energy segment is the only price-related increase that may be lowered in the future, he added.
He said the company will take measures to reduce expenses in Europe by $80 million. The "Europe Program" will reduce overall cost while preserving the supply of products to European markets.
The price increases and cost savings are early actions the company is taking to preserve company margins and grow earnings as they prepare for a situation where the war in Ukraine is affecting demand and global energy costs. Energy costs in Europe have increased 60% since last year and Beck said he expects energy costs to continue to rise, possibly another 28% by the end of the year.
"We will keep expanding pricing as well as we've done in quarter after quarter," Beck told analysts and investors. "We're going to get some upside from the European program that I've announced as well."
Ecolab earned $347.1 million, or $1.21 a share, in the third quarter. Revenue rose 10% to $3.7 billion. Earnings per share were 8% higher than the third quarter of 2021.
The results were slightly below analyst expectations. Adjusted earnings per share amounted to $1.30 a share, down 6% from the same quarter last year. The consensus estimate from analysts covering Ecolab was that adjusted EPS would be $1.31.
Ecolab executives expect operating performance to continue to improve as they aim for a return to double-digit earnings growth. In the fourth quarter, they expect adjusted EPS of $1.28 a share, the same as the fourth quarter of 2021, as foreign currency translations and increased interest expense will be a headwind.
Analysts had forecast that Ecolab would earn $1.49 in the fourth quarter.
