Ecolab earnings fall despite price hikes to cover rising freight and material costs

Hit by rising transportation and material costs, Ecolab retaliated with price hikes and surcharges. Yet net profit fell 10% in the first quarter.

As the St. Paul-based cleaning, water purification and filtration chemicals company saw its industrial and institutional business rebound from pandemic-related disruptions, sales jumped 13% to $3.26 billion in the quarter.

However, industrial profits were hit hard by commodity inflation and global events, which weighed on the quarter.

“First quarter results were in line with our expectations, although the operating environment was not,” CEO Christophe Beck said on a conference call with analysts on Tuesday.

Adjusting for one-time events, such as the acquisition of Purolite and the near closure of its 370-person chemical wholesale unit in Russia, profit rose 1% to $236 million, or 82 cents per share.

Still, analysts expected a penny more. The rise in quarterly revenue exceeded expectations.

Ecolab’s stock fell 3% to $170.02 per share on Tuesday afternoon.

Still, Beck said he was “very pleased” with the results.

Solid volume gains and a rush to “aggressively” price increases helped overcome raw material and freight costs that were 25% higher than a year ago, in part due to the disruptions created by Russia’s war against Ukraine, he said.

Ecolab said it suffered more than $1 billion in cost increases in 18 months, but its “strong pricing momentum, along with solid new business gains and the benefits of innovation and automation and digital services, have helped us fully weather these unprecedented headwinds,” Beck said. .

On April 1, Ecolab implemented temporary fuel surcharges of 8% to 12% to offset rising global oil and commodity prices. Last year, Ecolab raised prices by about 4% to counter rising costs due to freight, raw materials and supplier disruptions.

Beck said price increases would continue, hitting the 6% to 7% range for the rest of the year.

Although there is some uncertainty over the timing of the new surcharges, Beck now expects adjusted earnings to hit $1.22 per share in the second quarter and grow in the “low teens” for the whole of the year 2022.

During the quarter, Ecolab’s industrial unit, its largest segment, posted double-digit sales growth, but profits fell 10% to $189 million. Ecolab spokesman Mike Monahan said in an interview that rising raw material costs have hit the industrial segment hard.

On the other hand, the institutional unit – which serves hotels, restaurants and long-term care facilities – saw slight increases in the cost of raw materials, allowing operating profit to increase by 79% to 110 million. dollars during the quarter.

The hospitality industry’s recovery from early COVID-related shutdowns and disruptions helped results, but an “unexpected” slow return of restaurant customers drove those sales down about 35%, it said. Beck to analysts.

Ecolab’s newly acquired Purolite business, with annual revenue of $400 million, is expected to grow the company’s pharmaceutical business as demand already exceeds its supply, Beck said. Ecolab is currently building new Purolite factories in Pennsylvania and the UK.