EcoLab Going Strong Internationally Despite Low Oil Price, Economic Woes

Low oil prices crimping its oil and gas division business but also proves a boon for its overall business in terms of lower material prices

EcoLab Inc (NYSE:ECL) witnessed a stellar year for the past three years. Compared to the last fiscal year in 2013, the company recorded an 8% growth in revenues this year, averaging at 4.5% per year. This is attributed to the company’s successful execution of its business strategy ranging from acquisitions to cost savings, innovation to expansion into new markets. All this is done to ensure that the company does not keep itself fixated to one sector while heavily exposing itself to factors such as sharp currency fluctuations and other macroeconomic problems, such as the slowdown in the Chinese as well as the global economy.

EcoLab has derived most of its revenues from the oil and gas segment. Oil prices last year, during the summer, reached their peak at approximately $115 per barrel, before tumbling down to between $45-55 per barrel today. Apparently, the company had generated its revenue in the last six months of 2014, when oil prices remained at tolerable levels of an average between $70-75 per barrel. The revenue growth from the energy side declined as many oil majors cut back on their capital investments

The business recorded a 25% growth in sales from the energy segment, partly assisted by the acquisitions of Champion Technologies and Nalco. This ensures that the company expands it footprint in the energy-related chemicals sector required by the oil and gas industry. EcoLab’s other business segments, Global Industrial and Global Institutional, have all recorded strong growths from their sides too. The former clocked in a 4% growth to $1.28 billion, thanks to the launch of its 3D TRASAR, whereas the latter reported a 6% growth to $1.18 billion, due to addition of additional portfolio of products.

The future speculations suggest that EcoLab’s revenue sales from the energy segment will suffer due to cutbacks from oil and gas investments. The fall in oil prices will be beneficial for other segments of the company in the form of low material costs. On the financial side, it has an operating cash flow at $1.64 billion against the capital of $788 million, providing enough flexibility to pay dividends to its investors. The company is also on the verge of buying back $1billion worth of shares, resulting in a strong effect on the company’s dividends and share. Overall, from a business and financial point of view, there is no possible threat to the business, especially since its business model is working wonderfully.