Ecolab Inc. (NYSE: ECL):
2011 FIRST QUARTER
HIGHLIGHTS:
- Reported diluted EPS $0.40, equal to
prior year
- Adjusted EPS $0.45, +10%, excluding
special gains and charges and discrete tax items, reaches top end
of forecasted range
- Reported sales +6% to $1.5 billion;
fixed currency sales adjusted for acquisitions +4%
- Improved sales growth across the
board, led by U.S. Cleaning & Sanitizing, Asia Pacific and
Latin America, along with efficiency actions, offset higher
delivered product costs
First Quarter Ended March 31 (unaudited)
(Millions, except per share)
2011
2010 % Change Net Sales $
1,518.3 $ 1,432.1 6 % Operating Income 151.7 153.8 -1 %
Pretax Income 138.2 138.8 0 % Taxes 44.4 43.1 3 %
Net Income Attributable to Ecolab
$
93.6 $ 95.5 -2
% Diluted Earnings Per Share $ 0.40 $ 0.40 0 %
Diluted Average Shares Outstanding 235.9 239.0 -1 %
Ecolab Inc. reported a strong first quarter performance as sales
growth improved in all segments, led by strong sales gains in its
U.S. Cleaning & Sanitizing, Asia Pacific and Latin America
operations, and efficiency improvements offset higher delivered
product costs to produce a double-digit adjusted earnings per share
increase.
Ecolab's reported and fixed currency sales rose 6% to $1.5
billion in the first quarter of 2011; adjusted for acquisitions,
sales rose 4%. Net income attributable to shareholders decreased 2%
to $94 million. Reported diluted earnings per share were flat at
$0.40.
First quarter 2011 and 2010 results included special gains and
charges and discrete tax items. Excluding those items, adjusted
first quarter 2011 net income attributable to shareholders rose 9%
to $107 million, with adjusted diluted earnings per share up 10% to
$0.45, reaching the top end of Ecolab’s forecasted range. First
quarter 2010 adjusted diluted earnings per share were $0.41.
Currency translation had a favorable effect on reported and
adjusted diluted earnings per share of $0.01 per share in the first
quarter of 2011.
Segment review
First quarter 2011 sales for Ecolab's U.S. Cleaning &
Sanitizing operations rose 8% to $682 million. Adjusted for
acquisitions, sales increased 6%. Sales showed improved momentum in
all businesses, including Institutional, Food & Beverage and
Kay. Ecolab's U.S. Cleaning & Sanitizing operating income
decreased 1% to $112 million primarily reflecting higher delivered
product costs and investments.
U.S. Other Services sales increased 2% to $107 million in the
first quarter. Operating income rose 1% to $15 million.
Sales of Ecolab's International operations, when measured at
fixed currency rates, grew 5% to $716 million in the first quarter.
Fixed currency operating income increased 12% to $45 million. When
measured at public currency rates, International sales increased 5%
and operating income rose 21%.
The Corporate segment includes special gains and charges, which
are reported as a separate line item on the income statement.
Special gains and charges for the first quarter 2011 of $15 million
($12 million after-tax) primarily consisted of charges from the
previously announced European restructuring and Australian
acquisition-related charges. Special gains and charges for the
first quarter 2010 of $4 million (both pre- and after-tax)
primarily consisted of a charge for the impact on Ecolab’s balance
sheet of the Venezuelan currency devaluation. The Corporate segment
also includes investments in the development of business systems
and other corporate investments we are making as part of our
ongoing efforts to improve our efficiency and returns.
The reported income tax rate for the first quarter 2011 was
32.1% and compared with the reported rate of 31.1% in the first
quarter 2010. Excluding the tax rate impact of special gains and
charges and discrete tax items, the adjusted effective income tax
rate in the first quarter 2011 was 30.2% compared with 30.6% for
the same period last year.
Ecolab reacquired 1.5 million shares of its common stock during
the first quarter under its share repurchase program.
CEO comment
Commenting on the quarter, Douglas M. Baker, Jr., Ecolab’s
Chairman, President and Chief Executive Officer, said, “We are off
to a strong start in 2011, and it bodes well for the remainder of
the year. Momentum was better in all regions, as our aggressive
actions to expand market share and increase efficiency leveraged
better market conditions to offset higher delivered product
costs.
“We remain confident in our outlook for 2011 and expect better
top and bottom line growth over the balance of the year. Our end
markets and sales momentum are improving, our growth investments
are delivering effectively, we are implementing appropriate pricing
to offset the higher delivered product costs and our recent
acquisitions are providing excellent strategic value. We are making
good progress in our efforts to transform Europe into a higher
growth, more efficient and more profitable business, and expect to
see these results reflected in the second half and accelerating
into the next several years. While delivered product costs have
risen faster than expected, we believe we have the right actions in
place to effectively manage them. We look for our better sales
momentum and margin improvement actions to enable us to once again
deliver strong earnings gains and handsome returns to shareholders
this year and for the years ahead.”
Business Outlook
2011 – Full Year
Ecolab raised the lower end of its forecasted adjusted earnings
per share range, which exclude special gains and charges and
discrete tax items, and now expects adjusted earnings per share to
be in the $2.49 to $2.53 range for the full year ending December
31, 2011. Ecolab previously expected adjusted earnings per share in
the $2.47 to $2.53 range for the year.
Special gains and charges for 2011 are expected to be
approximately $0.25 per share unfavorable, primarily driven by
Europe restructuring charges. Future amounts related to discrete
tax items for 2011, if any, are not currently quantifiable.
2011 – Second Quarter
Ecolab expects improved year-over-year sales growth in the
second quarter 2011. Gross margins are expected to reflect the
impact of the rapid increase in delivered product costs offset in
part by price increases and cost efficiencies. The SG&A ratio
should reflect better sales leverage which is expected to more than
offset continued investment in the business.
Our outlook for the second quarter 2011 is
as follows:
Gross Margins
approx. 50%
SG&A % of Sales
36% - 37%
Interest expense, net
approx. $16 million
Effective tax rate
30%-31%
Adjusted EPS, excluding special gains and
charges
$0.62 - $0.64
We expect second quarter 2011 special gains and charges,
including restructuring and acquisition-related charges, to be a
net charge of approximately $0.10 per share.
Reported second quarter 2010 earnings per share of $0.54
included special gains and charges and discrete tax items.
Excluding these items, second quarter 2010 adjusted diluted
earnings per share were $0.56.
With sales of $6 billion and more than 26,000 associates, Ecolab
Inc. (NYSE: ECL) is the global leader in cleaning, sanitizing, food
safety and infection prevention products and services. Ecolab
delivers comprehensive programs and services to the foodservice,
food and beverage processing, healthcare, and hospitality markets
in more than 160 countries. More news and information is available
at www.ecolab.com.
Ecolab will host a live webcast to review the first quarter
earnings announcement and earnings guidance today at 1:00 p.m.
Eastern Time. The webcast, along with related presentation slides,
will be available to the public on Ecolab's website at
www.ecolab.com/investor. A replay of the webcast and related
materials will be available at that site.
Listening to the webcast requires Internet access, the Windows
Media Player or other compatible streaming media player.
This news release and certain of the accompanying tables include
financial measures that have not been calculated in accordance with
accounting principles generally accepted in the U.S. (GAAP). These
non-GAAP financial measures include fixed currency sales, fixed
currency operating income, adjusted effective tax rate and adjusted
diluted earnings per share. We provide these measures as additional
information regarding our operating results. We use these non-GAAP
measures internally to evaluate our performance and in making
financial and operational decisions, including with respect to
incentive compensation. We believe that our presentation of these
measures provides investors with greater transparency with respect
to our results of operations and that these measures are useful for
period-to-period comparison of results.
We include in special gains and charges items that are unusual
in nature, significant in amount and important to an understanding
of underlying business performance. In order to better allow
investors to compare underlying business performance
period-to-period, we provide adjusted diluted earnings per share,
which excludes special gains and charges and discrete tax
items.
The adjusted effective tax rate measure promotes
period-to-period comparability of the underlying effective tax rate
because the amount excludes the tax rate impact of special gains
and charges and discrete tax items which do not necessarily reflect
costs associated with historical trends or expected future
costs.
We evaluate the performance of our international operations
based on fixed currency rates of foreign exchange. Fixed currency
sales and fixed currency operating income measures eliminate the
impact of exchange rate fluctuations on our international sales and
operating income, respectively, and promote a better understanding
of our sales and operating income trends from underlying business
performance. Fixed currency amounts included in this release are
based on translation into U.S. dollars at the fixed foreign
currency exchange rates established by management at the beginning
of 2011.
These non-GAAP financial measures are not in accordance with, or
an alternative to, GAAP, and may be different from non-GAAP
measures used by other companies. Investors should not rely on any
single financial measure when evaluating our business. We recommend
that investors view these measures in conjunction with the GAAP
measures included in this news release. A reconciliation of
reported diluted earnings per share to adjusted diluted earnings
per share is provided in the table “Supplemental Diluted Earnings
per Share Information” included in this news release.
This news release contains various “Forward-Looking Statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. These include statements concerning our future financial
and business prospects, including forecasted 2011 second quarter
and full year business results, estimated sales, gross margins,
selling, general and administrative expense, interest expense,
effective tax rate, special gains and charges, restructuring
activities, end market trends, growth investments, acquisitions,
delivered product costs, pricing, adjusted diluted earnings per
share and the benefits of restructuring and cost savings activities
in 2011 and subsequent years. These statements, which represent
Ecolab’s expectations or beliefs concerning various future events,
are based on current expectations that involve a number of risks
and uncertainties that could cause actual results to differ
materially from those of such Forward-Looking Statements. In
particular, the ultimate results of any European restructuring and
business improvement actions depend on a number of factors,
including the development of a final plan, the input of the various
works councils on the terms of the restructuring, the impact of
local regulatory requirements regarding employee terminations, the
time necessary to develop and implement the restructuring and other
business improvement initiatives and the level of success achieved
through such actions in improving competitiveness, efficiency and
effectiveness. We caution that undue reliance should not be placed
on Forward-Looking Statements, which speak only as of the date
made.
Additional risks and uncertainties that may affect operating
results and business performance are set forth under Item 1A of our
most recent Form 10-K and include the vitality of the markets we
serve; the impact of worldwide economic factors such as the
worldwide economy, capital flows, interest rates and foreign
currency risk; our ability to execute on key business initiatives,
including leveraging a new ERP system and completing other actions
to increase the competitiveness of our European business; the
ability to acquire and effectively integrate complementary
businesses; fluctuations in raw material and delivered product
costs; our ability to develop competitive advantages through value,
innovation and customer support; the costs and effects of complying
with laws and regulations relating to the environment, including
evolving climate change standards, and to the manufacture, storage,
distribution, sale and use of our products, as well as to the
conduct of our business generally, including employment and labor
laws; restraints on pricing flexibility due to contractual
obligations; pressure on results of operations from consolidation
of customers and vendors; public health epidemics; the occurrence
of litigation or claims; the loss or insolvency of a major customer
or distributor; acts of war, terrorism or hostilities, natural or
man-made disasters, water shortages or severe weather conditions
which impact our markets; our ability to attract and retain high
caliber management talent; and other uncertainties or risks
reported from time to time in our reports to the Securities and
Exchange Commission.
Except as may be required under applicable law, we undertake no
duty to update our Forward-Looking Statements.
(ECL-E)
ECOLAB INC. CONSOLIDATED STATEMENT OF INCOME FIRST
QUARTER ENDED MARCH 31, 2011 (unaudited) First
Quarter Ended March 31 % (millions, except per share)
2011 2010 Change Net sales $ 1,518.3 $
1,432.1 6 % Cost of sales (1) 770.4 716.7 7 % Selling,
general and administrative expenses 581.6 558.1 4 % Special gains
and charges (1) 14.6 3.5
Operating income 151.7 153.8 -1 % Interest expense, net
13.5 15.0 -10 % Income before
income taxes 138.2 138.8 0 % Provision for income taxes
44.4 43.1 3 % Net income
including noncontrolling interest 93.8 95.7 -2 % Less: Net
income attributable to noncontrolling interest 0.2
0.2 Net income attributable to Ecolab $ 93.6
$ 95.5 -2 % Earnings attributable to Ecolab
per common share Basic $ 0.40 $ 0.41 -2 % Diluted $ 0.40 $ 0.40 0 %
Weighted-average common shares outstanding Basic 232.0 235.4
-1 % Diluted 235.9 239.0 -1 % (1) Special gains and
charges in the Consolidated Statement of Income above include the
following: (millions)
2011 2010 Cost of sales
Restructuring
$ 0.8 $ -
Subtotal cost of sales
0.8 - Special (gains) and
charges Restructuring
10.4 - Acquisition integration charges
3.6 - Business structure and optimization
0.6 0.6
Venezuela currency devaluation
- 4.2 Business write-downs
and closures
- (1.0 ) Other items
-
(0.3 ) Subtotal special (gains) and charges
14.6 3.5
Total
$ 15.4 $ 3.5
ECOLAB INC. OPERATING SEGMENT INFORMATION
FIRST QUARTER ENDED MARCH 31, 2011 (unaudited)
First Quarter Ended March 31 %
(millions)
2011 2010 Change Net Sales United States
Cleaning & Sanitizing
$ 681.5 $ 632.3 8 % Other Services
107.2 104.7 2 % Total
788.7
737.0 7 % International
716.2 681.2
5 % Subtotal at fixed currency rates
1,504.9 1,418.2
6 % Effect of foreign currency translation
13.4
13.9 Consolidated
$ 1,518.3
$ 1,432.1 6 % Operating Income United States
Cleaning & Sanitizing
$ 111.9 $ 113.4 -1 % Other
Services
14.7 14.6 1 % Total
126.6 128.0 -1 % International
45.0 40.2 12 %
Corporate
(20.6 ) (11.9 ) Subtotal at
fixed currency rates
151.0 156.3 -3 % Effect of foreign
currency translation
0.7 (2.5 )
Consolidated
$ 151.7 $ 153.8 -1 %
Note: The Corporate segment
includes special gains and charges reported on the Consolidated
Statement of Income as well as investments in the development of
business systems and other business efficiency investments.
ECOLAB INC. CONSOLIDATED BALANCE SHEET
(unaudited)
March
31 December 31 March 31 (millions)
2011 2010 2010
Assets Current assets Cash and cash equivalents
$
151.4 $ 242.3 $ 85.3 Accounts receivable, net
1,042.6
999.6 950.2 Inventories
480.2 447.6 468.9 Deferred income
taxes
82.2 78.9 86.2 Other current assets
132.5 101.5 127.7 Total
current assets
1,888.9 1,869.9 1,718.3 Property,
plant and equipment, net
1,192.5 1,148.3 1,141.8 Goodwill
1,465.1 1,329.3 1,342.2 Other intangible assets, net
439.7 282.5 295.6 Other assets
276.1
242.2 271.3 Total assets
$ 5,262.3 $ 4,872.2 $ 4,769.2
Liabilities and Equity Current liabilities Short-term
debt
$ 506.4 $ 189.2 $ 361.1 Accounts payable
359.7 349.3 316.0 Compensation and benefits
257.7
308.1 231.9 Income taxes
58.8 36.7 30.9 Other current
liabilities
467.6 441.5
430.1 Total current liabilities
1,650.2 1,324.8
1,370.0 Long-term debt
683.7 656.4 677.9
Postretirement health care and pension benefits
488.3 565.8
581.2 Other liabilities
225.4 192.2 271.6 Equity
Common stock
333.7 333.1 330.3 Additional paid-in capital
1,341.5 1,310.2 1,198.9 Retained earnings
3,332.1
3,279.1 2,957.1 Accumulated other comprehensive loss
(205.2
) (271.9 ) (307.7 ) Treasury stock
(2,591.5
) (2,521.3 ) (2,317.9 ) Total Ecolab
shareholders' equity
2,210.6 2,129.2 1,860.7 Noncontrolling
interest
4.1 3.8 7.8
Total equity
2,214.7 2,133.0 1,868.5 Total
liabilities and equity
$ 5,262.3 $ 4,872.2
$ 4,769.2
ECOLAB INC. SUPPLEMENTAL
DILUTED EARNINGS PER SHARE INFORMATION (unaudited)
The table below provides a reconciliation
of diluted earnings per share, as reported, to the non-GAAP measure
of adjusted diluted earnings per share.
First Second Six Third
Nine Fourth Quarter Quarter
Months Quarter Months Quarter
Year Ended Ended Ended Ended
Ended Ended Ended Mar. 31 June
30 June 30 Sept. 30 Sept. 30 Dec.
31 Dec. 31 2010 2010 2010
2010 2010 2010 2010
Diluted earnings per share, as reported
(U.S. GAAP)
$ 0.40 $ 0.54 $ 0.94 $ 0.74 $ 1.68 $ 0.56 $ 2.23
Adjustments: Special (gains) and charges (1) 0.02 0.00 0.02 (0.02 )
(0.00 ) 0.03 0.03 Tax expense (benefits) (2) (0.00 ) 0.01 0.01
(0.05 ) (0.05 ) 0.01 (0.03 )
Adjusted diluted earnings per share
(Non-GAAP)
$ 0.41 $ 0.56 $ 0.97 $ 0.66 $ 1.63
$ 0.60 $ 2.23
First
Quarter Ended Mar. 31 2011
Diluted earnings per share, as reported
(U.S. GAAP)
$ 0.40 Adjustments: Special (gains) and charges (3) 0.05 Tax
expense (benefits) (4) 0.00
Adjusted diluted earnings per share
(Non-GAAP)
$ 0.45
Per share amounts do not necessarily
sum due to changes in shares outstanding and rounding.
(1) Special gains and charges for 2010
include a $4.4 million charge, net of tax, related to currency
devaluation in Venezuela recorded in the first quarter, a $5.9
million gain, net of tax, on the sale of an investment in the third
quarter, and a $7.5 million charge, net of tax, for business
optimization costs in the fourth quarter, as well as other items,
net of tax.
(2) First quarter 2010 tax benefits
include discrete tax benefits related to tax audit settlement in
Germany, partially offset by discrete tax expense related to the
impact of a change in Medicare prescription drug benefit tax
deductions. Second quarter 2010 discrete tax expense primarily
includes the impact of international tax costs from optimizing our
business structure. Third quarter 2010 tax benefits primarily
include discrete tax impacts of recognizing settlements and
adjustments related to prior year tax returns. Fourth quarter 2010
net discrete tax expense primarily includes adjustments related to
prior year tax returns.
(3) Special gains and charges for the
first quarter of 2011 include restructuring charges of $9.0
million, net of tax, acquisition and integration costs of $2.9
million, net of tax, as well as other items, net of tax.
(4) First quarter 2011 discrete tax
expense primarily includes the impact of a tax rate change in the
U.S., partially offset by a discrete tax benefit related to a
California refund claim.
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