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Leading cleaning and sanitation products maker Ecolab Inc (NYSE:ECL) is slated to release its first-quarter fiscal 2011 results on April 26. The Minnesota-based company expects adjusted earnings between 42 cents and 45 cents a share. The current Zacks Consensus Estimate for the quarter is 44 cents, representing an estimated 7.32% annualized growth.

Ecolab expects sustained revenue growth at constant currency rates. Moreover, currency exchange translation has been predicted to favorably impact sales for the quarter. Adjusted gross margin target for the quarter has been pegged at 49%-50%.

With respect to earnings surprises, Ecolab’s performance has been erratic over the preceding four quarters. The company has posted two positive surprises over the last four quarters while it has trailed and met the Zacks Consensus Estimates on two other occasions. Ecolab has produced an average positive earnings surprise of 2.19% over the same timeframe, implying that it has beat the Zacks Consensus Estimate by that measure.

Fourth-Quarter Recap

Ecolab’s fourth-quarter fiscal 2010 adjusted earnings of 60 cents missed the Zacks Consensus Estimate by a penny. Net income soared 13% year over year to $131.3 million owing to higher sales from the company’s international operations and lower tax. Revenues rose modestly to $1,575.5 million, also missing the Zacks Consensus Estimate.

The results were once again supported by strong performances across emerging markets accompanied by growth in global lodging and food and beverage businesses. Ecolab’s effective cost-management and operational efficiency contributed to operating margin expansion. Separately, the company announced a major restructuring plan for its European business during the earnings call.

Estimate Revisions Trend

Agreement

Estimates for the upcoming quarter reflect an absolute lack of activity over the past week and the month. Out of 15 analysts covering the stock, none have made any revisions in either direction over these time periods. Similarly, estimates for fiscal 2011 have also remained stationary.

Magnitude

Given the lack of estimate revision, the magnitude of revisions for the first quarter and fiscal 2011 has been static over the last 7 and 30 days. The current Zacks Consensus Estimate for 2011 is $2.49, representing an estimated year-over-year growth of 11.72%.

Neutral on Ecolab

Ecolab leads in cleaning, sanitizing, pest elimination and food safety solutions with annual sales of roughly $6 billion. The company is investing in strategic areas such as product innovation and sales organization while rationalizing operating costs to boost margins.

Ecolab is also active on the acquisition front and continues to explore opportunities to expand into emerging markets for growth. Moreover, the company remains committed to delivering incremental returns to investors leveraging a solid balance sheet and healthy cash flow.

To boost efficiency and profitability, Ecolab is restructuring its European business. As part of this move, it plans to realign the supply chain and trim headcount, which will eliminate roughly 900 positions. The company expects savings from the restructuring to benefit its second-half 2011 results, including opportunities for meaningful margin expansion.

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, raw material price fluctuations represent a headwind for Ecolab in first-half 2011. Its aggressive acquisition strategy also has inherent integration risks. While Ecolab will eventually benefit from the meaningful savings to be realized from its European restructuring program, associated hefty expenses may be a drag on its bottom line. We are currently Neutral on the stock, supported by a short-term Zacks #3 Rank (Hold).

Source: Ecolab: Earnings Preview