Growth Prospects
Ecolab Inc. (NYSE:ECL) should also enjoy growth in new markets. It has meaningfully expanded its international presence in recent years, particularly when it comes to emerging markets.
Nations like China and India that are poised for higher economic growth rates than mature markets like the U.S. Approximately 25% of Ecolab’s annual revenue comes from Asia, Latin America, the Middle East, and Africa.
In addition, Ecolab pursues growth through bolt-on acquisitions. Last year alone, the company made five separate acquisitions, which collectively added $300 million in annual revenue.
These strategies have fueled significant growth over the long term. Ecolab has increased its earnings-per-share by 13.5% per year over the past decade. With its strong earnings growth, it has rewarded shareholders with compelling dividend growth of 14.4% a year over the same time period.
Ecolab’s growth has slowed to start 2016. Last quarter (1), earnings-per-share held flat from the same quarter last year. However, the company experienced a seven-point headwind to earnings growth due to foreign exchange. As a global company, Ecolab is exposed to heightened currency risk. But its organic growth indicates demand for Ecolab’s products and services remain strong.
If the rally in the U.S. dollar eases going forward, it will be a significant growth catalyst for Ecolab.
In addition, the company will generate earnings growth from share repurchases. A benefit of having such a highly profitable business model is that it leaves plenty of cash flow to buy back stock. Ecolab repurchased 2.3 million shares of its own stock last quarter alone.
Competitive Advantages & Recession Performance
Ecolab’s competitive advantage comes from a mix of its industry leading size, trusted brands, and innovative research and development division.
Ecolab’s 2015 annual report said the following about how the company’s effective R&D investing brings considerable growth:
“In 2015, we delivered another record innovation pipeline, the largest in company history. We introduced more new products than ever before, and delivered breakthrough solutions in every Ecolab division and across every region. We forecast the 2015 innovation pipeline to deliver more than $1 billion in new revenue in five years.”
The company’s larger size allows it to outspend its competitors in research and development which drives further innovation and an even greater research budget.
These competitive advantages have helped insulate Ecolab from economic downturns. It sailed through the Great Recession. The company continued to grow earnings at a rapid pace through the financial crisis.
– 2006 earnings-per-share of $1.43
– 2007 earnings-per-share of $1.66
– 2008 earnings-per-share of $1.86
– 2009 earnings-per-share of $1.99
– 2010 earnings-per-share of $2.23
Very few businesses reported earnings-per-share growth every year through the Great Recession. This makes Ecolab one of the most recession resistant Dividend Aristocrats.
