Cleaning and sanitizing firm Ecolab posted a strong 20% jump in first-quarter earnings despite only a 1% bump in sales.
Company officials said key sales gains, price increases and a lower tax rate helped offset the effect of spiraling freight costs and negative foreign exchange rates.
"First quarter earnings were in line with our expectations as solid, fixed-currency sales gains and operating margin expansion helped drive double-digit adjusted diluted earnings per share growth," said Douglas Baker, CEO of the St. Paul-based company, in a statement.
For the quarter ended March 31, Ecolab profits jumped to $296.5 million or $1.01 per share. Excluding one-time costs, adjusted earnings were $1.03 per share, a penny better than analysts expected. Sales were $3.5 billion, which was about $6 million lower than analysts expected.
Ecolab's stock price fell 33 cents Tuesday to close at $184.08 a share.
Included in the quarter was a special corporate net charge of $44 million tied to a previously announced efficiency initiative. The quarter also included an amortization expense of $40 million (compared to $43 million a year ago) that was tied to intangible assets related to Ecolab's Nalco merger.
Among Ecolab's three main businesses, Baker told analysts during a call Tuesday morning that sales and earnings momentum were "very strong" in Ecolab's industrial business.
In contrast, Ecolab's institutional division, its second largest, proved "disappointing" as its "sales were weaker than expected," Baker said. The unit's "faster exit from low-margin business and an inventory reduction by our distributors impacted the segment's first quarter sales growth," he said. "We expect institutional results to strengthen through the year."
The company's energy unit saw margin improvements, with operating income growth of 14%, but a 2% decrease in sales during a "tough market." Ecolab remains on track with its plans to divest a $2 billion piece of its oil-drilling chemicals business by mid-2020.
Baker reiterated Ecolab's forecast for 2019, noting that adjusted earnings per share are still expected to grow 10% to 14% from 2018 to reach $5.80 to $6 per share.
"In total, the first quarter represents a very good start for us and positions us to deliver double-digit adjusted earnings per share growth in 2019 while continuing to make critical investments in the business," Baker said.
CFRA research analyst Christopher Muir increased his stock price forecast for Ecolab for 2019 on Tuesday.
"We see strong growth continuing in the Global Industrials and Global Energy segments and increasing growth in the Global Institutional segment," he wrote in a research note. The company performed well during the quarter with higher prices and lower expenses that "more than offset higher delivered product costs" for the first three months of the year.