Ecolab: Public Health Is the Right Business at the Right Time

Aug. 5.08 | About: Ecolab Inc. (ECL)

While I was waiting in line on a recent visit to Starbucks (NASDAQ:SBUX), I couldn't help but notice a woman behind the counter who, with notebook in hand, was hawkishly observing every move that the baristas and food handlers made. Intrigued, I took a quick glance at the logo on this woman's shirt. It read "Ecosure". My brain ran through all of its stored files, but was just drawing a blank on the name Ecosure. I quickly jotted down a note in my phone and looked Ecosure up as soon as I could get to a computer.

Come to find out, Ecosure is a division of the Company Ecolab (NYSE:ECL). Ecolab produces various products specifically geared toward ensuring sanitary conditions at all types of food service establishments. They provide, among other things, dishwashing equipment, hand care products, surface cleaners, cleaning systems and antimicrobial products all mainly geared toward usage in the food service and hospitality industries.

There has been plenty of good news recently regarding Ecolab. They have just declared a regular dividend, they saw second quarter results jump 26% year over year and they have an international business segment that is producing great growth potential. All of that is great, but it is not the reason why I am starting to get excited about this company. The reason that I am starting to get excited about Ecolab is because of the Ecosure division.

The Ecosure division of Ecolab provides food safety services to businesses or other organizations that serve food to the public. Ecosure provides on-site evaluation of processes (this is likely what I witnessed at Starbucks), program design for food servers and supplier audits. Furthermore, it offers classroom services taught by certified trainers for any food service worker.

Initially, I was intrigued by Ecosure because I thought that any outside service that Starbucks was willing to pay money for, especially given the company's recent cutbacks, is a service that is probably necessary and thus is likely being used by other food service providers. This alone was enough to get me interested in Ecosure, but it wasn't quite enough to get me to consider investing in it quite yet.

I started considering Ecolab as a potential investment when the recent events of the jalapeno salmonella outbreak caused a nationwide tomato ban and then ultimately a restriction on the importation of jalapenos from certain suppliers. Now, I don't want to go as far as to say that these events caused any sort of public panic, but they certainly did make people feel a little uneasy about eating fresh tomatoes or jalapenos.

This ban and subsequent public uneasiness did take a financial toll on food service companies and it is something that all food service and hospitality companies would like to avoid. That is exactly where a company like Ecosure comes in.

Imagine how devastated any food service company would have been had the salmonella outbreak been traced back directly to it. It would be hard for even larger companies to persevere through such an occurrence. For a food service company, it is certainly worth the preventative cost to ensure that no such occurrence is even remotely possible. In providing supplier audits, process evaluation and food handler training, Ecosure stands to benefit from that preventative cost.

I think, especially in light of recent events, Ecosure is in the right business at the right time and they will undoubtedly be a profitable part of Ecolab. I think this alone is enough to make Ecolab a good investment, but there's one more reason why I think Ecolab is a good buy.

The last reason that I think Ecolab is a good investment is that it is a company that benefits from public fears. What do I mean by this? Sometimes when a story about an illness, be it the Avian flu or salmonella, becomes widely publicized, the public becomes a little more cautious and perhaps even fearful of the said illness. Again, I wouldn't go as far as to say that the public goes into panic mode, but people do tend to ask (especially of schools, local government, hospitals, etc) "what are we doing to prevent this illness from occurring here?"

A situation like this is where Ecolab's public health division could stand to reap a nice bit of business. Ecolab offers products and services for infection prevention, cleaning/control products and procedures and pandemic preparedness for such illness causing organisms as Avian Influenza, Mad Cow, E. Coli, Hepatitis A, Influenza, Listeria, Pandemic Flu, Salmonella, SARS and a myriad of others.

I don't think I'm being too presumptive when I say that Ecolab stands to profit from the public reaction to any publicized illness, particularly food borne illness. This again just proves to me that Ecolab has found a nice business niche.

The bottom line is that Ecolab, in providing services that ensure public health, is not only providing a necessary public service, but also reaping nice profits. These profits can only be increased by the international expansion of the company and I think it's a good idea for investors to consider picking up some shares in Ecolab.

Disclosure: none.