Shareholders of water, hygiene, and energy conglomerate Ecolab (NYSE:ECL) can walk around with an added pep in their step after the company reported first-quarter 2018 earnings.

Ecolab started 2018 with strong momentum across its three business segments, which prompted management to raise full-year earnings per share guidance. Adjusted EPS of $0.91 during the first three months of the year just managed to eke out an earnings beat, as Wall Street expected adjusted EPS of $0.90 on average, according to analyst opinions compiled by Yahoo! Finance.

There were several other changes tucked away in the new full-year guidance. Here's what investors need to know.

Five rising arrows drawn on a chalkboard; the middle one is green.

Image source: Getty Images.

By the numbers

To be fair to Wall Street, the opening period of the year is always the weakest for Ecolab -- and also a little more difficult to predict. The company reported diluted EPS of $0.84 in the first quarter of 2018, compared to $0.86 in the year-ago period. The drop of 2% was insignificant and could be explained away by currency fluctuations.

Indeed, adjusted EPS soared 14% in the same comparison periods. (Ecolab issues guidance for adjusted EPS, which is also what analysts attempt to predict.) Meanwhile, total revenue jumped 10% from the year-ago period thanks to strong results across all three business segments. 

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Global energy revenue

$847 million

$775 million

9%

Global industrial revenue

$1.24 billion

$1.18 billion

5%

Global institutional revenue

$1.22 billion

$1.11 billion

9%

Global energy operating income

$71 million

$71 million

0%

Global industrial operating income

$130 million

$135 million

(4%)

Global institutional operating income

$199 million

$187 million

6%

Corporate operating income

($69 million)

($51 million)

N/A

Data source: Ecolab. Note: All numbers are reported in public currency rates and are not adjusted.

Increased corporate overhead weighed the most heavily on total operating income during the first quarter of 2018. But it includes a one-time $26 million investment in the Ecolab Foundation that was announced after the new U.S. corporate tax rates were revealed.

Aside from that, the factors that have affected results in recent quarters continued to exert an influence. The energy segment grew sales 9% year over year as global oil and gas production growth continued its momentum at the beginning of 2018. Operating income growth lagged, as the company saw increased compensation expenses, although the year-ago period saw an unusually low level.

The industrial segment grew on the heels of robust growth in food and beverage and life sciences in Latin America and North America -- the same catalysts as in the last several quarters. The institutional segment was driven higher by strong volume and pricing growth in Asia.

Management was careful to note that although it expects pricing gains and volume growth across the board to continue driving the business in 2018, increased delivery costs will remain headwinds throughout the year. That's reflected in the updated guidance.

Workers on a food packaging line.

Image source: Getty Images.

Looking ahead

Ecolab expects second-quarter 2018 adjusted diluted EPS of $1.23 to $1.29, another reminder that the first quarter of each year is generally slower. Management also updated its prior full-year 2018 guidance to reflect several changes to operations going forward.

Metric

Updated Guidance

Prior Guidance

Change

Adjusted gross margin

42%

47%-48%

(5 pp-6 pp)

Selling, general, and administrative expenses as percentage of sales

27%-28%

32%-33%

(5 pp)

Interest expense

$240 million

$240 million

N/A

Adjusted tax rate

21%-22%

22%

(0 pp-1 pp)

Adjusted diluted EPS

$5.30-$5.50

$5.25-$5.45

1%

Data source: Ecolab press release. pp = percentage points.

Higher cost of product revenue (from higher delivery costs) is expected to lower gross margin from previous full-year 2018 guidance. But management is looking to offset some of those effects by lowering corporate overhead 15% from prior guidance, partly aided by higher revenue. Interest expense and the adjusted tax rate are expected to be roughly the same as before, while adjusted diluted EPS is now expected to be 1% higher than previously thought.

A solid year ahead

Ecolab's performance in the quarter goes to show that sitting back and allowing small wins to accumulate over the long haul is more important than attempting to predict a $42 billion company's operations in a three-month period. With operational strength expected to continue through the remainder of the year, the company appears to remain on a familiar path: slow and steady progress.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool recommends Ecolab. The Motley Fool has a disclosure policy.