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Leading cleaning and sanitation products company Ecolab Inc (NYSE:ECL) is slated to release its fourth-quarter fiscal 2010 results on February 17. In its third quarter call, the Minnesota-based company stated that it envisions adjusted earnings per share for the fourth quarter in the range of 59 cents to 61 cents. The current Zacks Consensus Estimate for the quarter is 61 cents, representing an estimated 10.55% annualized growth.

The company expects sustained revenue growth at constant currency rates. However, currency exchange translation has been forecast to unfavorably affect the top line for the fourth quarter and modestly impact earnings.

Third-Quarter Flashback

Ecolab’s third-quarter fiscal 2010 adjusted earnings of 66 cents beat the Zacks Consensus Estimate by a penny while profit climbed 20% year over year buoyed by healthy performances across Asia-Pacific and Latin American operations as well as the company’s Kay business.

Revenues edged up 1% year over year to $1.56 billion, but marginally missed the Zacks Consensus Estimate. Ecolab's US Cleaning & Sanitizing operation sales grew 4% year over year while revenues from International operations rose 3% in the quarter. Management’s effective cost-management and operational efficiency fueled expansion in operating margin.

Estimate Revisions Trend

Agreement

Estimates for the fourth quarter and fiscal 2010 manifest an absolute lack of movement over the past week and month. Out of 15 analysts covering the stock, none have made any revisions in either direction for the fourth quarter over these time periods. A similar trend applies for fiscal 2010.

Magnitude

Given the lack of activity, the magnitude of revisions for the forthcoming quarter and fiscal year has plateaued over the last 7 and 30 days. The current Zacks Consensus Estimate for 2010 is $2.24, reflecting an estimated year-over-year growth of 12.34%.

With respect to earnings surprises, the company’s performance has not been consistent over the preceding four quarters. Ecolab has posted two positive surprises over the last four quarters while it has trailed and met the Zacks Consensus Estimate on two other occasions. The company has produced an average positive earnings surprise of 2.14% over the same timeframe, implying that it has beaten the Zacks Consensus Estimate by that measure.

Neutral on Ecolab

Ecolab caters products and services to the hospitality, foodservice, institutional and industrial markets. It leads in cleaning, sanitizing, pest elimination and food safety solutions with revenues of $6 billion.

To drive growth, Ecolab continues to invest in strategic areas such as product innovation, healthcare, water and energy and global pest elimination while rationalizing operating costs. The company remains focused on bringing new technologies aimed at reducing food safety risks. Moreover, Ecolab is active on the acquisition front and is exploring opportunities to expand into emerging markets for growth.

The food services market, one of Ecolabs’ mainstays, is recovering across the U.S. and Europe. Moreover, the company is benefiting from the recent uptick in hotel lodging demand and favorable market trends across food and beverage and healthcare segments.

Ecolab remains committed to delivering incremental returns to investors leveraging a solid balance sheet, healthy cash flow and earnings stability. The company, in December 2010, raised its quarterly dividend to 17.5 cents from 15.5 cents, representing a 13% growth.

Although we are impressed with Ecolab’s strong international exposure, we remain concerned about intense competition. The company’s U.S. Cleaning & Sanitizing and International divisions face stiff competition from Clorox (NYSE:CLX) and Church & Dwight (NYSE:CHD). Moreover, Ecolab’s aggressive acquisition strategy has inherent integration risks.

Also, Ecolab’s international sales are susceptible to foreign exchange headwinds and raw material price fluctuations may weigh on its operating results. This is reflected in our current Neutral recommendation on the stock, which is supported by a Zacks #3 Rank (Hold).

Source: Ecolab: Earnings Preview