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ECOLAB INC. 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Ecolab Inc.

Filing date:

02/21/2025

TLDR:

Ecolab reported record sales, operating income margin, free cash flow, and adjusted diluted earnings per share for FY 2024. The company’s financial health is strong with a positive outlook, driven by growth in key segments and effective cost management.

ELI5:

Ecolab had a really good year with more sales and profits than ever before. They’re doing well because they’re selling more of their cleaning and hygiene products and managing their costs effectively.

Accession #:

0001558370-25-001263

Published on

Analyst Summary

  • Record sales, operating income margin, free cash flow, and adjusted diluted earnings per share reported.
  • Sales growth driven by Institutional & Specialty and Pest Elimination segments.
  • Gross Margin increased to 43.5% in 2024 from 40.2% in 2023.
  • Operating Income increased by 41% year-over-year.
  • Diluted EPS increased by 54% year-over-year.
  • Net Debt to EBITDA improved to 1.7 in 2024 from 2.4 in 2023.
  • Current Ratio is 1.26, within the typical range for the chemical industry.
  • Quick Ratio is 0.95, within the typical range for the chemical industry.
  • Debt-to-Equity Ratio decreased to 0.86 in 2024 from 1.01 in 2023.
  • Interest Coverage Ratio increased to 10.1 in 2024 from 7.0 in 2023.
  • Inventory Turnover is 6.0, within the average range for the chemical industry.
  • DSO is 66.4 days, within the average range for the chemical industry.
  • Asset Turnover is 0.70, within the average range for the chemical industry.
  • P/E Ratio is 36.0, above the average for the market.
  • P/B Ratio is 8.6, above the average for the market.
  • P/S Ratio is 4.8, above the average for the chemical industry.
  • EV/EBITDA is 23.0, above the average for the chemical industry.

Opportunities and Risks

  • Opportunities lie in sustainability initiatives, strategic acquisitions, and digital technology advancements.
  • Risks include global economic factors, competition, raw material costs, and cybersecurity threats.

Potential Implications

Company Performance

  • Focus on sustainability, strategic acquisitions, and digital technology advancements positions the company well for future success.
  • Executing the “One Ecolab” initiative to enhance growth and margin expansion.
  • Investing in sustainability initiatives and digital technology advancements to drive future growth.

Stock Price

  • Strong financial health and growth potential may positively impact stock price.
  • High valuation ratios reflect strong investor confidence.
  • Commitment to maintaining “A” range credit ratings and strong cash flow generation are positive indicators.

Ecolab Inc. (ECL) 10-K Filing Analysis – FY 2024

Executive Summary

This report analyzes Ecolab’s 10-K filing for the fiscal year ended December 31, 2024. Ecolab reported record sales, operating income margin, free cash flow, and adjusted diluted earnings per share. Sales growth was driven by Institutional & Specialty and Pest Elimination segments, while Industrial and Healthcare & Life Sciences also contributed. Strong value pricing, lower delivered product costs, and higher volumes drove operating income growth. Key risks include global economic factors, competition, raw material costs, and cybersecurity threats. Opportunities lie in sustainability initiatives, strategic acquisitions, and digital technology advancements. Overall, the company appears financially healthy with a positive outlook.

Company Overview

Ecolab Inc. (ECL) is a global sustainability leader offering water, hygiene, and infection prevention solutions and services. The company operates in four reportable segments: Global Industrial, Global Institutional & Specialty, Global Healthcare & Life Sciences, and Global Pest Elimination. Ecolab serves customers in the food, healthcare, life sciences, hospitality, and industrial markets across more than 170 countries.

Detailed Analysis

Financial Statement Analysis

Key Ratios and Trends:

  • Revenue Growth: Reported sales increased by 3% year-over-year.
  • Gross Margin: Increased to 43.5% in 2024 from 40.2% in 2023, driven by strong value pricing and lower delivered product costs.
  • Operating Income: Increased by 41% year-over-year. Adjusted operating income increased by 23%.
  • EPS: Diluted EPS increased by 54% year-over-year. Adjusted diluted EPS increased by 28%.
  • Net Debt to EBITDA: Improved to 1.7 in 2024 from 2.4 in 2023, indicating reduced leverage.

Segment Performance:

  • Global Industrial: Sales increased by 3%, driven by new business wins and value pricing.
  • Global Institutional & Specialty: Sales increased by 8%, outperforming end-market trends.
  • Global Healthcare & Life Sciences: Sales decreased by 11%, impacted by the sale of the global surgical solutions business.
  • Global Pest Elimination: Sales increased by 9%, led by strong growth in food & beverage, restaurants, and food retail.

Management’s Discussion and Analysis (MD&A) Insights

  • Management highlights the company’s commitment to sustainability and its goals for water conservation and greenhouse gas emission reduction.
  • The “One Ecolab” initiative, aimed at enhancing growth and margin expansion, is a key focus.
  • The company acknowledges risks related to economic factors, competition, raw material costs, and cybersecurity.

Red Flags and Uncommon Metrics

  • Special (Gains) and Charges: Significant special items, including restructuring expenses and gains from the sale of the global surgical solutions business, impact comparability.
  • Pension Plan: The unrecognized net losses on U.S. qualified and non-qualified pension plans increased, indicating potential future expense.
  • Cybersecurity: The company acknowledges the increasing threat of cybersecurity attacks and the potential for business disruption.

Conclusion and Actionable Insights

Ecolab’s 2024 performance demonstrates strong financial health and growth potential. The company’s focus on sustainability, strategic acquisitions, and digital technology advancements positions it well for future success. However, investors should be aware of the risks related to economic factors, competition, raw material costs, and cybersecurity threats. The company’s commitment to maintaining “A” range credit ratings and its strong cash flow generation are positive indicators.

Overall Assessment: Buy

Recommendations:

  • Continue to monitor and manage risks related to economic factors, competition, raw material costs, and cybersecurity.
  • Focus on executing the “One Ecolab” initiative to enhance growth and margin expansion.
  • Continue to invest in sustainability initiatives and digital technology advancements to drive future growth.

Ecolab Financial Analysis – 2024

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Ratio/Metric: Gross Profit Margin = (Net Sales – Cost of Sales) / Net Sales = (15,741.4 – 8,899.7) / 15,741.4 = 43.5%
    • Trend: 2024: 43.5%, 2023: 40.2%. Percentage Change: ((43.5-40.2)/40.2) * 100 = 8.2%
    • Industry: The chemical industry typically sees gross profit margins between 25% and 50%. Ecolab’s margin is within this range and above the industry average.
  • Operating Profit Margin

    • Ratio/Metric: Operating Profit Margin = Operating Income / Net Sales = 2,802.4 / 15,741.4 = 17.8%
    • Trend: 2024: 17.8%, 2023: 13.0%. Percentage Change: ((17.8-13.0)/13.0) * 100 = 36.9%
    • Industry: The average operating margin for the chemical industry is around 12-18%. Ecolab’s operating margin is at the higher end of this range.
  • Net Profit Margin

    • Ratio/Metric: Net Profit Margin = Net Income / Net Sales = 2,112.4 / 15,741.4 = 13.4%
    • Trend: 2024: 13.4%, 2023: 8.96%. Percentage Change: ((13.4-8.96)/8.96) * 100 = 49.6%
    • Industry: Typical net profit margins in the chemical industry range from 5% to 15%. Ecolab’s net profit margin is within this range.
  • Return on Assets (ROA)

    • Ratio/Metric: ROA = Net Income / Total Assets = 2,112.4 / 22,387.8 = 9.4%
    • Trend: 2024: 9.4%, 2023: 6.28%. Percentage Change: ((9.4-6.28)/6.28) * 100 = 49.7%
    • Industry: An average ROA for the chemical industry is around 5%. Ecolab’s ROA is above the industry average.
  • Return on Equity (ROE)

    • Ratio/Metric: ROE = Net Income / Total Equity = 2,112.4 / 8,789.2 = 24.0%
    • Trend: 2024: 24.0%, 2023: 17.0%. Percentage Change: ((24.0-17.0)/17.0) * 100 = 41.2%
    • Industry: The average ROE for the chemical industry is around 10-15%. Ecolab’s ROE is significantly above the industry average.
  • Earnings Per Share (EPS) – Basic and Diluted

    • Ratio/Metric: Basic EPS = Net Income / Weighted Average Shares Outstanding (Basic) = 2,112.4 / 284.3 = $7.43
    • Ratio/Metric: Diluted EPS = Net Income / Weighted Average Shares Outstanding (Diluted) = 2,112.4 / 286.6 = $7.37
    • Trend: Basic EPS: 2024: $7.43, 2023: $4.82. Percentage Change: ((7.43-4.82)/4.82) * 100 = 54.1%
    • Trend: Diluted EPS: 2024: $7.37, 2023: $4.79. Percentage Change: ((7.37-4.79)/4.79) * 100 = 53.9%
    • Industry: EPS varies widely.

Liquidity

  • Current Ratio

    • Ratio/Metric: Current Ratio = Current Assets / Current Liabilities = 6,025.7 / 4,792.8 = 1.26
    • Trend: 2024: 1.26, 2023: 1.30. Percentage Change: ((1.26-1.30)/1.30) * 100 = -3.1%
    • Industry: A typical current ratio for the chemical industry is between 1.0 and 2.0. Ecolab’s current ratio is within this range.
  • Quick Ratio (Acid-Test Ratio)

    • Ratio/Metric: Quick Ratio = (Current Assets – Inventory) / Current Liabilities = (6,025.7 – 1,464.9) / 4,792.8 = 0.95
    • Trend: 2024: 0.95, 2023: 0.96. Percentage Change: ((0.95-0.96)/0.96) * 100 = -1.0%
    • Industry: A typical quick ratio for the chemical industry is between 0.7 and 1.0. Ecolab’s quick ratio is within this range.
  • Cash Ratio

    • Ratio/Metric: Cash Ratio = Cash and Cash Equivalents / Current Liabilities = 1,256.8 / 4,792.8 = 0.26
    • Trend: 2024: 0.26, 2023: 0.21. Percentage Change: ((0.26-0.21)/0.21) * 100 = 23.8%
    • Industry: A typical cash ratio for the chemical industry is between 0.1 and 0.3. Ecolab’s cash ratio is within this range.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Ratio/Metric: Debt-to-Equity Ratio = Total Debt / Total Equity = 7,564.9 / 8,789.2 = 0.86
    • Trend: 2024: 0.86, 2023: 1.01. Percentage Change: ((0.86-1.01)/1.01) * 100 = -14.9%
    • Industry: A typical debt-to-equity ratio for the chemical industry is between 0.5 and 1.5. Ecolab’s debt-to-equity ratio is within this range.
  • Debt-to-Assets Ratio

    • Ratio/Metric: Debt-to-Assets Ratio = Total Debt / Total Assets = 7,564.9 / 22,387.8 = 0.34
    • Trend: 2024: 0.34, 2023: 0.37. Percentage Change: ((0.34-0.37)/0.37) * 100 = -8.1%
    • Industry: A typical debt-to-assets ratio for the chemical industry is between 0.2 and 0.5. Ecolab’s debt-to-assets ratio is within this range.
  • Interest Coverage Ratio (Times Interest Earned)

    • Ratio/Metric: Interest Coverage Ratio = EBIT / Interest Expense = (Net Income + Income Tax Expense + Interest Expense) / Interest Expense = (2,131.9 + 439.3 + 282.5) / 282.5 = 10.1
    • Trend: 2024: 10.1, 2023: 7.0. Percentage Change: ((10.1-7.0)/7.0) * 100 = 44.3%
    • Industry: A good interest coverage ratio is generally above 3. Ecolab’s interest coverage ratio is strong.

Activity/Efficiency

  • Inventory Turnover

    • Ratio/Metric: Inventory Turnover = Cost of Goods Sold / Average Inventory = 8,899.7 / ((1,464.9 + 1,497.2)/2) = 6.0
    • Trend: 2024: 6.0, 2023: 6.1. Percentage Change: ((6.0-6.1)/6.1) * 100 = -1.6%
    • Industry: The average inventory turnover for the chemical industry is around 4-8. Ecolab’s inventory turnover is within this range.
  • Days Sales Outstanding (DSO)

    • Ratio/Metric: DSO = (Accounts Receivable / Net Sales) * 365 = (2,865.0 / 15,741.4) * 365 = 66.4 days
    • Trend: 2024: 66.4, 2023: 67.1. Percentage Change: ((66.4-67.1)/67.1) * 100 = -1.0%
    • Industry: The average DSO for the chemical industry is around 40-70 days. Ecolab’s DSO is within this range.
  • Days Payable Outstanding (DPO)

    • Ratio/Metric: DPO = (Accounts Payable / Cost of Goods Sold) * 365 = (1,810.0 / 8,899.7) * 365 = 74.2 days
    • Trend: 2024: 74.2, 2023: 62.3. Percentage Change: ((74.2-62.3)/62.3) * 100 = 19.1%
    • Industry: The average DPO for the chemical industry is around 30-60 days. Ecolab’s DPO is above this range.
  • Asset Turnover

    • Ratio/Metric: Asset Turnover = Net Sales / Total Assets = 15,741.4 / 22,387.8 = 0.70
    • Trend: 2024: 0.70, 2023: 0.70. Percentage Change: ((0.70-0.70)/0.70) * 100 = 0.0%
    • Industry: The average asset turnover for the chemical industry is around 0.5-1.0. Ecolab’s asset turnover is within this range.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Ratio/Metric: P/E Ratio = Stock Price / Diluted EPS = 264.69 / 7.37 = 36.0
    • Industry: The average P/E ratio for the market is around 20-25. Ecolab’s P/E ratio is above this range.
  • Price-to-Book Ratio (P/B)

    • Ratio/Metric: P/B Ratio = Stock Price / Book Value Per Share = 264.69 / (8,757.3 / 283.4) = 8.6
    • Industry: The average P/B ratio for the market is around 3-4. Ecolab’s P/B ratio is above this range.
  • Price-to-Sales Ratio (P/S)

    • Ratio/Metric: P/S Ratio = Market Cap / Net Sales = (264.69 * 283.4) / 15,741.4 = 4.8
    • Industry: The average P/S ratio for the chemical industry is around 1-3. Ecolab’s P/S ratio is above this range.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Ratio/Metric: EV/EBITDA = (Market Cap + Total Debt – Cash) / EBITDA = ((264.69 * 283.4) + 7,564.9 – 1,256.8) / 3,789.1 = 23.0
    • Industry: The average EV/EBITDA ratio for the chemical industry is around 10-15. Ecolab’s EV/EBITDA ratio is above this range.

Growth Rates

  • Revenue Growth

    • Ratio/Metric: Revenue Growth = (2024 Revenue – 2023 Revenue) / 2023 Revenue = (15,741.4 – 15,320.2) / 15,320.2 = 2.75%
  • Net Income Growth

    • Ratio/Metric: Net Income Growth = (2024 Net Income – 2023 Net Income) / 2023 Net Income = (2,112.4 – 1,372.3) / 1,372.3 = 53.9%
  • EPS Growth

    • Ratio/Metric: EPS Growth = (2024 Diluted EPS – 2023 Diluted EPS) / 2023 Diluted EPS = (7.37 – 4.79) / 4.79 = 53.9%

Other Relevant Metrics

  • One Ecolab Restructuring

    • Description: This appears to be a company-specific restructuring initiative.
    • Impact: In 2024, One Ecolab resulted in a $1.9 million cost of sales and a $98.3 million special charge.
  • Sale of Global Surgical Solutions Business

    • Description: Ecolab divested its global surgical solutions business.
    • Impact: This resulted in a special gain of $340.3 million in 2024.
  • Net Debt to EBITDA

    • Ratio/Metric: Net Debt to EBITDA = Net Debt / EBITDA = 6,308.1 / 3,789.1 = 1.7
    • Trend: 2024: 1.7, 2023: 2.4. Percentage Change: ((1.7-2.4)/2.4) * 100 = -29.2%

2. Commentary

Ecolab’s financial performance in 2024 demonstrates a significant improvement in profitability, driven by higher gross and operating margins, and a substantial increase in net income. The company’s liquidity position remains stable, while solvency metrics indicate reduced leverage. Activity ratios show efficient management of inventory and sales, but an extended payment cycle. While valuation ratios are high, they reflect strong investor confidence, and the company’s growth rates are promising, particularly in net income and EPS.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️